<PAGE>

                                    FORM 10K

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934


For the Fiscal Year Ended                                 Commission File Number
December 31, 2002                                                        0-16728

                  FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

          Delaware                                               52-1638296
          --------                                               ----------
 (State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                              Identification No.)

          P.O. Box 9507, 7 Bulfinch Place - Suite 500, Boston, MA 02114
         --------------------------------------------------------------
                    (Address of principal executive offices)

                                 (617) 570-4600
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

           Securities registered pursuant to Section 12(b) of the Act:

                                      NONE

           Securities registered pursuant to Section 12(g) of the Act:

                      UNITS OF LIMITED PARTNERSHIP INTEREST

         Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.

                            Yes  X     No
                               -----     -----

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

         Indicate by check mark whether the registrant is an accelerated filer
(as defined by Exchange Act Rule 12b-2).

                            Yes        No  X
                               ------    -----

         There is no public market for the Limited Registrant Units.
Accordingly, information with respect to the aggregate market value of Limited
Registrant Units held by non-affiliates of Registrant has not been supplied.

                       Documents incorporated by reference
                       -----------------------------------
                                      None

                                                           Exhibit Index page 58

<PAGE>

                                     PART I

            Certain matters discussed herein are forward-looking statements. We
have based these forward-looking statements on our current expectations and
projections about future events. Certain, but not necessarily all, of such
forward-looking statements can be identified by the use of forward-looking
terminology, such as "believes," "expects," "may," "will," "should,"
"estimates," or "anticipates," or the negative thereof or other variations
thereof or comparable terminology. All forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause our actual
transactions, results, performance or achievements to be materially different
from any future transactions, results, performance or achievements expressed or
implied by such forward- looking statements. Although we believe the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, we can give no assurance that our expectations will be
attained or that any deviations will not be material. We disclaim any
obligations or undertaking to publicly release any updates or revisions to any
forward-looking statement contained in this annual report on Form 10-K to
reflect any change in our expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based.

ITEM 1.  BUSINESS

General

         Fairfield Inn by Marriott Limited Partnership (the "Partnership"), a
Delaware limited partnership, was formed on August 23, 1989 to acquire, own and
operate 50 Fairfield Inn by Marriott properties (the "Inns"), which compete in
the economy segment of the lodging industry. Effective August 16, 2001,
AP-Fairfield GP LLC, a Delaware limited liability company, became the general
partner of the Partnership. See "Restructuring Plan" below. During the year
ended December 31, 2002, the Partnership sold four of its Inns, two of which
leased their underlying land from Marriott International, Inc. ("Marriott
International"), and retains an interest in 46 Inns. These sales are discussed
further below.

The Partnership has experienced declining operations in 2002 and, as a result,
failed to meet its debt service payments on its loan encumbering its properties
since November 11, 2002. As such, the Partnership is in default on its mortgage
loan and is currently negotiating with the lender to restructure the loan terms.
If operating results do not significantly improve or a restructuring of the loan
cannot be negotiated, the lender may or could seek to foreclose on the Inns.
Further, it is expected that the Partnership will not be able to comply with the
terms of the Restructuring Plan and make the $23 million in capital improvements
by November 30, 2003, thereby creating a default under the Franchise Agreement
and Ground Lease. On March 26, 2003, the Partnership received notice from
Marriott International that it was in default under the ground lease agreements,
due to its failure to pay the full amount due of minimum rentals owed under the
Ground Leases beginning in January 2003. As a result of the current loan default
and the possible future defaults, the Partnership may seek to protect its
interest in the Inns by filing for bankruptcy protection. See "Restructuring
Plan", "Ground Leases" and "Mortgage Debt" below.

         As of December 31, 2002, the Partnership leases the land underlying 30
of its Inns from Marriott International and some of its affiliates. The
Partnership's 46 Inns are located in sixteen states. See "Item 2. Properties"
below. Effective November 30, 2001, Sage Management Resources III, LLC ("Sage"
or "Manager"), an affiliate of Sage Hospitality Resources, LLC, began providing
management at the Inns. See "Restructuring Plan" below. Prior to such date, the
Inns were managed by Fairfield FMC Corporation, a wholly owned subsidiary of
Marriott International, as part of the Fairfield Inn by Marriott system under a
long-term management agreement. Under Sage the Inns continue to be operated
under the Fairfield Inn by Marriott system. Sage is a leading hotel management
company that, including the Partnership's properties, owns, manages and/or
operates 86 hotels located in 26 states. Of these hotels, 75 carry a Marriott
flag including 63 Fairfield Inns.

         Between November 17, 1989 and July 31, 1990, the Partnership sold
83,337 units of limited partnership interests in a registered public offering
for $1,000 per unit. The original general partner, Marriott FIBM One
Corporation, contributed $0.8 million for a 1% general partner interest and $1.1
million to assist in establishing our initial working capital reserve at $1.5
million, as required in the partnership agreement. In addition, the general
partner

<PAGE>

purchased units equal to a 10% limited partner interest at the closing of the
offering. The remaining 90% limited partnership interest was acquired by
unrelated parties.

         As a result of the Partnership's requirements to obtain the funds
necessary to complete certain capital improvements by November 30, 2003, the
continued decline in operations since 1996 and in an effort to reduce operating
costs, the Partnership placed eight Inns on the market for potential sale, with
the approval of its mortgage lender. Four of the eight Inns were sold during
2002. These four Inns are located in Montgomery, Alabama; Atlanta, Georgia;
Chicago, Illinois; and Charlotte, North Carolina. The remaining four Inns that
were still held for sale at December 31, 2002 are located in Orlando, Florida;
Charlotte, North Carolina; Raleigh, North Carolina; and Columbus, Ohio. However,
the lender's previously granted consent may not be valid as an event of default
exists under the loan documents. There can be no assurance that the remaining
Inns held for sale can be sold or, if sold, will be sold for an amount
sufficient to make the necessary capital improvements. Therefore, the
Partnership reclassified these Inns from properties held for sale and began
depreciating their net book values in the first quarter of 2003, after the
Partnership determined to no longer market these Inns for sale.

Restructuring Plan

         As a result of the Partnership's continued decline in operating results
which are discussed below, the prior general partner, FIBM One LLC, developed a
restructuring plan for the Partnership. In connection with this plan, the
consent of limited partners of the Partnership was sought for the transfer by
FIBM One LLC of its general partner interest in the Partnership to the current
general partner. Effective August 16, 2001, following the receipt of the
necessary consent to the transfer of the general partner interest, FIBM One LLC
transferred its general partner interest in the Partnership to AP-Fairfield GP
LLC, which is affiliated with Apollo Real Estate Advisors, L.P. and Winthrop
Financial Associates, a Boston based real estate investment company with
extensive experience in partnership, asset and property management as well as
investor servicing.

         On November 30, 2001, the Restructuring Plan was implemented as the
Partnership (i) replaced Marriott International as the property manager at the
Partnership's properties with Sage Management, (ii) entered into new Franchise
Agreements with Marriott International, (iii) entered into Ground Lease
modifications which provide for substantially reduced rent for the year 2002,
and an extension of the term to November 30, 2098, (iv) agreed to complete the
property improvement plans ("PIPs") required by Marriott International at the
properties by no later than November 30, 2003 and (v) Marriott International
waived its right to receive the deferred fees then owing to it.

         Pursuant to the terms of the management agreement with Sage, which
agreement has a term of five years subject to early termination, the Partnership
is required to pay Sage a management fee equal to 3% of adjusted gross revenues
at the Partnership's properties. In addition, Sage is entitled to an annual
incentive management fee equal to 10% of the excess earnings before interest,
taxes, depreciation and amortization of the Partnership in excess of $25 million
during the first three years. If the Partnership's earnings before interest,
taxes, depreciation and amortization is not at least $25 million for the 2004
calendar year (subject to certain exceptions), the Partnership has the right to
terminate Sage. See "The Fairfield Inn by Marriott System" below.

         The new Franchise Agreements are substantially similar to the prior
agreements with Marriott International as they relate to the use of the
"Fairfield Inn by Marriott" flag except that it is an event of default under the
Ground Lease if the PIPs are not completed by November 30, 2003, which is
likely. If the Partnership were to default on the Franchise Agreement, it would
also constitute a default under the Ground Lease and the Loan encumbering the
Partnership's properties. The Franchise Agreements permit the Inns to be
operated as "Fairfield Inns by Marriott." See "The Fairfield Inn by Marriott
System" below.

         If prior to November 30, 2003 the Partnership provides evidence to
Marriott International that it has received a capital infusion (either by way of
loan or otherwise) of not less than $23 million in order to fund the completion
of the PIPs, that the Partnership is diligently pursuing completion of the PIPs,
and certain other conditions are satisfied, the Ground Leases will be further
modified to provide, among other things, for further substantial reductions in
rent through December 31, 2004, for an additional option to purchase the fee
interest in the properties on terms more favorable than those contained in the
existing options, provided certain option payments are made, and for the
shortening of the terms of the Ground Leases to December 31, 2052 with a
Partnership right to extend the term for three successive periods of


                                       3
<PAGE>

twelve years each. If the Partnership does not provide such evidence, which is
likely, the additional purchase options granted in connection with the
restructuring will be terminated.

         Also, as part of the restructuring plan, the Partnership filed a Form
S-1 Registration Statement, in which the Partnership sought to offer its limited
partners the right to purchase $23 million in subordinated notes due in 2007
(the "Offering"). The proceeds of the Offering were to have been used for
capital improvements at the Inns. However, due to the Partnership's current
financial difficulties, and in light of the decline in operations throughout
2001 and 2002, it was determined not to make the Offering and the Registration
Statement was withdrawn. Accordingly, absent a significant increase in operating
results, it is expected that the Partnership will not satisfy its obligations
under the Restructuring Plan.

Declining Operations; Capital Shortfall

         The Inns have experienced a substantial decline in operating results
over the past several years. Since 1996, our annual revenues have declined each
year, from $97.4 million in 1996 to $78.8 million in 2002. The operating profit
has declined over the same period from a $17.3 million operating profit in 1996
to a $2.5 million operating profit in 2002. The decline in Inn operations is
primarily due to increased competition, over-supply of limited service hotels in
the markets where the Partnership's Inns operate, increased pressure on room
rates, the deferral of capital improvements needed to make the Inns more
competitive in their marketplaces because of a lack of funds, and a slowdown in
the economy resulting in a softness in the lodging industry as a whole.
Exacerbating this trend was the impact of the events of September 11, 2001 which
have had a significant detrimental effect on the hospitality business in general
and the Inns in particular as travel nationwide has significantly declined. As
of November 11, 2002, the Partnership is in default under the mortgage loan
agreement due to its failure to pay the regularly scheduled debt service payment
due on that date. The Partnership is also in default under the franchise
agreements with Marriott International due to its failure to make its property
improvement fund contributions beginning in September 2002, also resulting in
technical default under the mortgage loan agreement. The Partnership has
requested from the lender further modifications to the mortgage loan agreement,
including paying debt service solely from available cash flow, selling certain
of the Partnership's properties and applying the proceeds from the sales toward
replenishing reserves held by the lender. If the lender is unwilling to grant
the requested modifications the Partnership may be required to seek protection
by filing for bankruptcy or the Partnership's properties may be lost through
foreclosure.

         In light of the age of the Partnership's Inns, which range from 13 to
16 years, major capital expenditures will be required over the next several
years to remain competitive in the markets where the Partnership operates and to
satisfy brand standards, required by our management agreement. These capital
expenditures include room refurbishments planned for 22 of our Inns over the
next several years and the replacement of roofs and facades. As indicated above,
it is unlikely that the improvements can be made without a significant increase
in operating results. If the capital improvements are not completed, the
Franchise Agreement could be terminated and the Inns could no longer be operated
as "Fairfield Inn by Marriott". If this were to occur, which is likely, the
Partnership would seek to become part of a comparable, nationally recognized
hotel system in order to continue to comply with the obligations under our loan
documents. If the Partnership is unable to retain another nationally recognized
manager, it could significantly impair our revenues and our cash flow. Further,
loss of the ability to operate as a "Fairfield Inn by Marriott" is a default
under our loan agreement and ground lease which ultimately could result in a
foreclosure on the Inns.

         For further discussion of our results of operations, shortfall of
capital, and liquidity situation, as well as efforts being undertaken to address
these problems, see "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" below.

Competition

         The United States lodging industry is segmented into full service and
limited service properties. The Inns are included within the limited service
segment and directly compete in the sub-segment of mid-scale properties without
food and beverage facilities. This segment is highly competitive and includes
many name brands including Comfort Inn and Suites, Holiday Inn Express, Hampton
Inn and Suites, La Quinta Inn and Suites, Sleep Inn, Country Inn and Suites,
Candlewood Hotels and Wingate Inns. Competition is based primarily on the level
of service, quality of accommodations, convenience of locations and room rates.
Full service hotels generally offer restaurant and lounge


                                       4
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facilities and meeting space, as well as a wide range of services and amenities.
Hotels within our competitive set generally offer basic guest room
accommodations with limited or no services and amenities.

         Based on data by Smith Travel Research, supply in this sub-segment
increased significantly in the late 1990's, growing at rates in excess of 11%
annually, which exceeded demand growth for each year during the period from 1995
through 1999. Additionally, the supply growth rate is projected to continue to
grow for the next three years, which will increase the competitive pressure on
the Inns. These new products frequently reflect updated designs and features,
which increases the need to make capital expenditures at the Inns in order for
them to compete effectively. In addition to competing brands, customers compare
the Inns to other Fairfield Inn by Marriott properties. The Fairfield by
Marriott brand currently consists of 503 hotels, of which the Partnership owns
46, within the United States, and continues to grow, with 15 hotel openings and
construction of an additional 23 inns expected to commence in 2003, according to
our manager. The Partnership's Inns, which are 13 to 16 years old, struggle to
compete with newer Fairfield Inn properties, which benefit from design
enhancements and a more contemporary feel, as well as other limited service
properties in the marketplaces where the Partnership operates.

         The inclusion of the Inns within the nationwide Fairfield Inn by
Marriott hotel system provides advantages of name, recognition, and centralized
reservations and advertising, system-wide marketing and promotion, centralized
purchasing and training and support services. As economy hotels, the Inns
compete with limited service hotels in their respective markets by providing
streamlined services and amenities at prices that are significantly lower than
those available at full service hotels.

The Fairfield Inn by Marriott System

         As part of the "Fairfield Inn by Marriott" system, the manager is
required to furnish specific chain services to the Inns, which services are
furnished generally on a central or regional basis to all Inns in the Fairfield
Inn by Marriott hotel system that are owned, leased, or managed by Marriott
International and its subsidiaries. Costs and expenses incurred in providing
such services are allocated among all domestic Fairfield Inn by Marriott hotels
managed, owned or leased by Marriott International or its subsidiaries. The
costs and expenses are allocated among all Inns based on the gross revenues of
each Inn.

         Beginning in 1997, the Partnership's Inns began participating in
Marriott International's Marriott Rewards Program ("MRP"). The cost of this
program is charged to all hotels in the full-service, Residence Inn by Marriott,
Courtyard by Marriott and Fairfield Inn by Marriott systems based upon the MRP
revenues at each hotel or Inn. The total amounts of chain services and MRP costs
allocated to the Partnership for the years ended December 31, 2002, 2001 and
2000 were $5.0 million, $1.8 million and $1.7 million, respectively. These
expenses increased in 2002 due to the terms of the new franchise agreement
entered with Marriott International effective November 30, 2001. This increase
was offset by a decline in administrative expenses, such as central office
services charged by Marriott International, which declined $3.5 million from
2001.

         In addition, Marriott International maintains a marketing fund to pay
the costs associated with specified system-wide advertising, marketing, sales,
promotional and public relations materials and programs. Each Inn within the
system contributes approximately 2.5% (for 2002) and 2.4% (for 2001 and prior)
of gross Inn revenues to the marketing fund. For the years ended December 31,
2002, 2001 and 2000, the Partnership contributed $1.9 million, $1.9 million and
$2.5 million, respectively, to the marketing fund.

Ground Leases

         The land on which 30 of our Inns are located is leased from Marriott
International or its affiliates. The leases, prior to the amendment discussed
below, expired on November 30, 2088 and provide that, other than 2002, the
Partnership will pay annual rents equal to the greater of a specified minimum
rent for each property or a percentage rent based on gross revenues of the Inn
operated on the land. The minimum rents are adjusted every five years based on
changes in the Consumer Price Index. The percentage rent, which also varies from
property to property, is fixed at predetermined percentages of gross revenues
that increase over time. On November 30, 2001, the Partnership entered into an
amendment to the ground lease which cancelled the Partnership's obligation to
pay unpaid deferred ground rent for 2000 and 2001 in the amount of $2.2 million,
reduced the minimum ground rent from $2.7 million to $100,000 for


                                       5
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2002, and extended the term of the lease to November 30, 2098. Further, if by
November 30, 2003 the Partnership (i) receives a capital infusion (either by way
of loan or otherwise) of not less than $23 million in order to fund the
completion of the PIPs, (ii) is diligently pursuing completion of the PIPs, and
(iii) satisfies certain other conditions, the ground rent will be reduced
through 2004 and the Partnership will have an option to acquire the fee interest
in the land for a price equal to $45,776,611. It is currently not expected that
the Partnership will be able to meet these conditions thereby resulting in a
default under the Franchise Agreements, which would also constitute a default
under the Ground Leases. Accordingly, not only could the Partnership lose the
right to operate its Inns as a "Fairfield Inn by Marriott", but the 30 Inns
subject to Ground Lease could be lost to the ground lessor.

         In connection with our 1997 refinancing, beginning in 1997 and
continuing until the mortgage debt is repaid, the payment of rental expense
exceeding 3% of gross revenues from the 30 leased Inns in the aggregate will be
deferred in any year that cash flow is less than the regularly scheduled
principal and interest payments on the mortgage debt. The deferred ground rent
payment remains the Partnership's obligation and is payable thereafter to the
extent that there is cash available after the payment of debt service and other
obligations as required by agreements with the manager and the lender. At
December 31, 2002, an aggregate of $4.7 million of ground rent was deferred. The
amount of deferred ground rent for 2001 and prior waived as a result of the
ground lease amendment of $2.2 million is recognized as a reduction in ground
rent expense over the remaining life of the new lease term, since it represents
a new operating lease as of November 30, 2001, for accounting purposes. Ground
rent expense is recognized on a straight-line basis over the new lease term. The
excess of ground rent expense recognized over rental payments required by the
lease agreement of $2.5 million is deferred at December. 31, 2002.

         Under the leases, the Partnership pays all costs, expenses, taxes and
assessments relating to the leased Inns and the underlying land, including real
estate taxes. Each ground lease provides that the Partnership has a first right
of refusal in the event the applicable ground lessor decides to sell the leased
premises. Upon expiration or termination of a land lease, title to the
applicable Inn and all improvements reverts to the ground lessor.

         On March 26, 2003, the Partnership received notice from Marriott
International that it was in default under the ground lease agreements, due to
its failure to pay the full amount due of minimum rentals owed under the Ground
Leases beginning in January 2003.

Mortgage Debt

         As of December 31, 2002, the Partnership has $137 million of mortgage
debt. The mortgage debt is non-recourse, bears interest at a fixed rate of 8.40%
and requires monthly payments of principal and interest based upon a 20-year
amortization schedule for a 10-year term expiring January 11, 2007. Thereafter,
until the final maturity date of January 11, 2017, interest is payable at an
adjusted rate, as defined, and all excess cash flow is applied toward principal
amortization. The mortgage debt is secured by first mortgages on all of the
Inns, the land on which they are located, or an assignment of the Partnership's
interest under the ground leases, including ownership interest in all
improvements thereon, fixtures and personal property related thereto.

         The Partnership's mortgage lender, Nomura Asset Capital Corporation,
securitized the loan through the issuance and sale of commercial mortgage backed
securities backed by mortgages on a total of 71 properties. As described above,
we have received a notice of default from the lender for failure to make debt
service payments. We will continue to negotiate with the lender in an effort to
restructure the loan. However, because the loan is part of securitization, such
restructuring efforts are more difficult. If operating results do not
significantly improve or a restructuring of the loan cannot be negotiated, the
lender may seek to foreclose on the Inns. In such case, the Partnership may seek
to protect its interest in the Inns by filing for bankruptcy protection. We
previously reported to the limited partners that, as a result of our decline in
operating performance, Fitch IBCA, a major credit rating agency, downgraded the
two lowest classes of the CMBS on September 2, 1999. On May 23, 2000, Fitch IBCA
once again downgraded the two lowest classes of the CMBS due to our continued
decline in operating performance. The downgrade of these securities has no
effect on the current terms of our mortgage debt, although it would impair our
ability to obtain new funding from other sources.

Property Sales


                                       6
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         On July 29, 2002, the Partnership sold one of its inns located in
Montgomery, Alabama for $3.1 million. The net proceeds from the sale of
approximately $2.9 million were applied toward the Partnership's mortgage debt,
in accordance with the terms of the loan agreement. The Partnership recognized a
gain on the sale of approximately $2.1 million.

         On August 12, 2002, the Partnership sold its inn located in Charlotte
(Airport), North Carolina for $2.5 million. The net proceeds from the sale of
approximately $0.3 million, which is net of approximately $1.9 million
attributed to the ground lease buyout, were applied toward the Partnership's
mortgage debt, in accordance with the terms of the loan agreement. The
Partnership recognized a gain on the sale of approximately $0.2 million.

         On August 14, 2002, the Partnership sold its inn located in Atlanta
(Southlake), Georgia for approximately $3.0 million. The net proceeds from the
sale of approximately $2.8 million were applied toward the Partnership's
mortgage debt, in accordance with the terms of the loan agreement. The
Partnership recognized a gain on the sale of approximately $0.2 million.

         On October 9, 2002, the Partnership sold its inn located in Chicago
(Lansing), Illinois for $2.3 million. The net proceeds from the sale of
approximately $1.4 million, which is net of approximately $0.7 million
attributed to the ground lease buyout, will be applied toward the Partnership's
mortgage debt, in accordance with the terms of the loan agreement. The
Partnership recognized a gain on the sale of approximately $1.1 million.

Employees

         The Partnership has no employees. Services are performed for the
Partnership by the general partner and agents retained by the Partnership
including Sage.

Litigation Settlement

         On March 16, 1998, limited partners in several partnerships sponsored
by Host Marriott Corporation, filed a lawsuit, styled Robert M. Haas, Sr. and
Irwin Randolph Joint Tenants, et al. v. Marriott International, Inc., et al.,
Case No. CI-04092, in the 57th Judicial District Court of Bexar County, Texas
against Marriott International, Inc., Host Marriott, various of their
subsidiaries (including the general partners of the partnerships set forth
below), J.W. Marriott, Jr., Stephen Rushmore, and Hospitality Valuation
Services, Inc. (collectively, the "Defendants"). The lawsuit related to the
following limited partnerships: Courtyard by Marriott Limited Partnership,
Courtyard by Marriott II Limited Partnership, Marriott Residence Inn Limited
Partnership, Marriott Residence Inn II Limited Partnership, Fairfield Inn by
Marriott Limited Partnership, Desert Springs Marriott Limited Partnership, and
Atlanta Marriott Marquis Limited Partnership (collectively, the "Partnerships").
The plaintiffs alleged that the Defendants conspired to sell hotels to the
Partnerships for inflated prices and that they charged the Partnerships
excessive management fees to operate the Partnerships' hotels. The plaintiffs
further alleged that the Defendants committed fraud, breached fiduciary duties,
and violated the provisions of various contracts. The plaintiffs sought
unspecified damages. The Defendants, which did not include the Partnerships,
maintained that there was no truth to the plaintiffs' allegations and that the
lawsuit was totally devoid of merit.

         In September 2000, the Partnership's then general partner, Marriott
International and other defendants settled this lawsuit filed by limited
partners of seven limited partnerships, including our limited partners. The
terms of the settlement required that the defendants make cash payments to our
limited partners of approximately $152 per unit in full satisfaction of the
litigation and a release of all claims. In addition, the manager agreed to
forgive $23.5 million of deferred incentive management fees payable by the
Partnership.


                                       7
<PAGE>

Seasonality

         Demand at the Inns is affected by normally recurring seasonal patterns.
For most of the Inns, demand is higher in the spring and summer months (March
through October) than during the remainder of the year. As a result of the
economic slowdown and events of September 11, fourth quarter 2002 and 2001
operations were significantly lower than the same period in 2000.

ITEM 2.  PROPERTIES

         The Partnership's portfolio consists of 46 Fairfield Inn by Marriott
properties as of March 31, 2003. The Inns, which range in age between 13 and 16
years, are geographically diversified among 16 states.

            The following table presents the location and number of rooms for
each of the Inns. All of the Inns are managed by Sage. See Item 1. Business. The
land on which the Inns are located is either owned by us or leased under a
long-term agreement.

<TABLE>
<CAPTION>
           Location of Inn                                 Number of Rooms
           ---------------                                 ---------------
<S>                                                       <C>
           Alabama
                Birmingham--Homewood(1)                           132
           California
                Los Angeles--Buena Park(1)                        135
                Los Angeles--Placentia                            135
           Florida
                Gainesville(1)                                    135
                Miami--West(1)                                    135
                Orlando--International Drive(1)                   135
                Orlando--South(1)                                 132
           Georgia
                Atlanta--Airport(1)                               132
                Atlanta--Gwinnett Mall                            135
                Atlanta--Northlake(1)                             133
                Atlanta--Northwest(1)                             130
                Atlanta--Peachtree Corners                        135
                Savannah(1)                                       135
           Iowa
                Des Moines--West(1)                               135
           Illinois
                Bloomington--Normal(1)                            128
                Peoria                                            135
                Rockford                                          135
           Indiana
                Indianapolis--Castleton(1)                        132
                Indianapolis--College Park                        132
           Kansas
                Kansas City--Merriam                              135
                Kansas City--Overland Park                        134


                                       8
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           Michigan
                Detroit--Airport(1)                               133
                Detroit--Auburn Hills(1)                          134
                Detroit--Madison Heights(1)                       134
                Detroit--Warren(1)                                132
                Detroit--West (Canton)(1)                         133
                Kalamazoo(1)                                      133
           Missouri
                St.  Louis--Hazelwood                             135
           North Carolina
                Charlotte--Northeast(1)                           133
                Durham(1)                                         135
                Fayetteville(1)                                   135
                Greensboro(1)                                     135
                Raleigh--Northeast(1)                             132
                Wilmington                                        134
           Ohio
                Cleveland--Airport                                135
                Columbus--North(1)                                135
                Dayton--North(1)                                  135
                Toledo--Holland                                   134
           South Carolina
                Florence                                          135
                Greenville                                        132
                Hilton Head(1)                                    119
           Tennessee
                Johnson City(1)                                   132
           Virginia
                Hampton                                           134
                Virginia Beach(1)                                 134
           Wisconsin
                Madison(1)                                        135
                Milwaukee--Brookfield                             135

           TOTAL                                                6,138
</TABLE>

(1)  The land on which the Inn is located is leased by the Partnership from
     Marriott International under a long-term lease agreement. See "Item 1.
     Business-Ground Lease."


                                       9
<PAGE>

Schedule of Properties

            The following table sets forth as of December 31, 2002, the gross
carrying value, accumulated depreciation and federal tax basis for each of the
Inns. The rate and method of depreciation varies at each property. See, "Item 8.
Financial Statements and Supplementing Data, Notes 2 and 3" for additional
information.

<TABLE>
<CAPTION>
Location of Inn                             Gross Carrying Value       Accumulated Depreciation       Federal Tax Basis
---------------                             --------------------       ------------------------       -----------------
<S>                                        <C>                        <C>                            <C>
Alabama
    Birmingham--Homewood                        $4,385,000                   $3,867,000                 $2,415,000
California
    Los Angeles--Buena Park                      3,502,000                    3,002,000                  2,239,000
    Los Angeles--Placentia                       7,582,000                    3,466,000                  4,098,000
Florida
    Gainesville                                  4,891,000                    2,993,000                  1,989,000
    Miami--West                                  5,913,000                    3,257,000                  2,521,000
    Orlando--International Drive                 5,583,000                    3,176,000                  2,408,000
    Orlando--South                               3,790,000                    3,326,000                  2,573,000
Georgia
    Atlanta--Airport                             3,754,000                    3,215,000                  2,414,000
    Atlanta--Gwinnett Mall                       6,420,000                    3,084,000                  3,327,000
    Atlanta--Northlake                           4,179,000                    3,504,000                  2,415,000
    Atlanta--Northwest                           6,028,000                    3,888,000                  2,397,000
    Atlanta--Peachtree Corners                   4,704,000                    2,818,000                  3,143,000
    Savannah                                     5,032,000                    2,785,000                  2,285,000
Iowa
    Des Moines--West                             5,510,000                    3,394,000                  2,179,000
Illinois
    Bloomington--Normal                          6,219,000                    3,786,000                  2,596,000
    Peoria                                       6,703,000                    3,429,000                  3,434,000
    Rockford                                     5,975,000                    3,379,000                  2,751,000
Indiana
    Indianapolis--Castleton                      5,622,000                    3,459,000                  2,373,000
    Indianapolis--College Park                   6,302,000                    3,528,000                  2,944.000
Kansas
    Kansas City--Merriam                         5,769,000                    3,026,000                  2,756,000
    Kansas City--Overland Park                   6,649,000                    3,278,000                  3,398,000
Michigan
    Detroit--Airport                             5,896,000                    3,444,000                  2,578,000
    Detroit--Auburn Hills                        6,601,000                    3,641,000                  3,170,000
    Detroit--Madison Heights                     6,375,000                    3,620,000                  2,861,000
    Detroit--Warren                              4,755,000                    3,553,000                  2,317,000
    Detroit--West (Canton)                       5,848,000                    3,644,000                  2,428,000
    Kalamazoo                                    5,665,000                    3,099,000                  2,540,000
Missouri
    St. Louis--Hazelwood                         6,168,000                    3,212,000                  3,204,000


                                       10
<PAGE>

North Carolina
    Charlotte--Northeast                         3,454,000                    3,074,000                  2,269,000
    Durham                                       5,190,000                    3,107,000                  2,145,000
    Fayetteville                                 5,004,000                    2,841,000                  2,087,000
    Greensboro                                   5,224,000                    3,045,000                  2,232,000
    Raleigh--Northeast                           2,927,000                    2,624,000                  2,250,000
    Wilmington                                   5,714,000                    3,162,000                  2,623,000
Ohio
    Cleveland--Airport                           7,041,000                    3,504,000                  3,698,000
    Columbus--North                              2,873,000                    2,873,000                  2,163,000
    Dayton--North                                5,266,000                    3,234,000                  2,183,000
    Toledo--Holland                              5,990,000                    3,311,000                  2,805,000
South Carolina
    Florence                                     5,434,000                    3,102,000                  2,355,000
    Greenville                                   4,471,000                    3,122,000                  3,098,000
    Hilton Head                                  6,897,000                    3,231,000                  3,421,000
Tennessee
    Johnson City                                 3,859,000                    2,927,000                  2,370,000
Virginia
    Hampton                                      6,120,000                    2,935,000                  3,356,000
    Virginia Beach                               5,039,000                    3,017,000                  2,115,000
Wisconsin
    Madison                                      5,392,000                    3,360,000                  2,190,000
    Milwaukee--Brookfield                        5,395,000                    2,868,000                  2,639,000

TOTAL                                         $247,110,000                 $149,210,000               $121,752,000
</TABLE>

Occupancy

         The following table sets forth the average occupancy rates at the Inns
for the years ended December 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
Location of Inn                                    2002                     2001                      2000
---------------                                    ----                     ----                      ----
<S>                                        <C>                        <C>                            <C>
Alabama
   Birmingham--Homewood                           60.0%                     60.8%                    65.8%
California
   Los Angeles--Buena Park                        60.2%                     68.3%                    73.4%
   Los Angeles--Placentia                         67.4%                     74.9%                    75.5%
Florida
   Gainesville                                    64.4%                     61.6%                    65.1%
   Miami--West                                    68.9%                     72.7%                    80.0%
   Orlando--International Drive                   56.0%                     63.2%                    82.6%
   Orlando--South                                 48.9%                     55.6%                    70.9%
Georgia
   Atlanta--Airport                               60.6%                     70.0%                    71.7%
   Atlanta--Gwinnett Mall                         48.5%                     59.1%                    68.7%
   Atlanta--Northlake                             48.0%                     59.5%                    70.7%
   Atlanta--Northwest                             54.0%                     58.3%                    67.9%
   Atlanta--Peachtree Corners                     46.1%                     59.6%                    71.8%
   Savannah                                       66.5%                     67.6%                    71.9%


                                       11
<PAGE>

Iowa
   Des Moines--West                               65.6%                     63.1%                    65.7%
Illinois
   Bloomington--Normal                            60.1%                     68.3%                    68.4%
   Peoria                                         61.3%                     64.5%                    63.7%
   Rockford                                       51.3%                     57.4%                    59.5%
Indiana
   Indianapolis--Castleton                        54.3%                     61.1%                    66.2%
   Indianapolis--College Park                     50.2%                     58.0%                    61.5%
Kansas
   Kansas City--Merriam                           60.9%                     64.5%                    66.8%
   Kansas City--Overland Park                     55.2%                     58.3%                    65.8%
Michigan
   Detroit--Airport                               75.2%                     79.5%                    88.2%
   Detroit--Auburn Hills                          61.4%                     65.2%                    77.0%
   Detroit--Madison Heights                       64.0%                     69.6%                    78.6%
   Detroit--Warren                                50.1%                     60.1%                    72.6%
   Detroit--West (Canton)                         61.4%                     68.1%                    76.4%
   Kalamazoo                                      62.8%                     63.0%                    63.6%
Missouri
   St. Louis--Hazelwood                           57.6%                     63.6%                    69.0%
North Carolina
   Charlotte--Northeast                           38.5%                     38.3%                    54.9%
   Durham                                         66.2%                     67.1%                    71.3%
   Fayetteville                                   84.4%                     64.4%                    70.7%
   Greensboro                                     63.6%                     59.8%                    64.4%
   Raleigh--Northeast                             56.2%                     52.5%                    54.8%
   Wilmington                                     56.8%                     53.3%                    62.0%
Ohio
   Cleveland--Airport                             54.8%                     61.0%                    67.6%
   Columbus--North                                59.1%                     67.1%                    71.2%
   Dayton--North                                  66.4%                     65.7%                    72.5%
   Toledo--Holland                                59.5%                     65.2%                    67.0%
South Carolina
   Florence                                       74.4%                     71.1%                    66.8%
   Greenville                                     53.5%                     57.4%                    65.4%
   Hilton Head                                    58.5%                     52.5%                    65.8%
Tennessee
   Johnson City                                   53.3%                     51.6%                    53.6%
Virginia
   Hampton                                        57.5%                     55.4%                    61.2%
   Virginia Beach                                 68.4%                     66.8%                    68.4%
Wisconsin
   Madison                                        59.1%                     60.0%                    62.6%
   Milwaukee--Brookfield                          53.9%                     62.2%                    69.6%

Total Average Occupancy                           59.2%                     62.0%                    68.0%
</TABLE>


                                       12
<PAGE>

Room Rates

         The following table sets forth the average daily room rates at the Inns
for the years ended December 31, 2002, 2001 and 2000. Average daily room rate is
the annual room revenue divided by the number of paid occupied rooms for the
year.

<TABLE>
<CAPTION>
Location of Inn                                    2002                     2001                      2000
---------------                                    ----                     ----                      ----
<S>                                        <C>                        <C>                            <C>
Alabama
   Birmingham--Homewood                           $49.52                   $50.11                    $49.15
California
   Los Angeles--Buena Park                        $51.98                   $55.19                    $49.28
   Los Angeles--Placentia                         $57.14                   $56.13                    $52.18
Florida
   Gainesville                                    $51.49                   $49.47                    $47.78
   Miami--West                                    $57.16                   $63.04                    $64.94
   Orlando--International Drive                   $61.74                   $59.10                    $59.94
   Orlando--South                                 $46.94                   $45.96                    $47.44
Georgia
   Atlanta--Airport                               $52.82                   $48.99                    $48.17
   Atlanta--Gwinnett Mall                         $53.51                   $54.51                    $47.91
   Atlanta--Northlake                             $52.05                   $49.46                    $47.30
   Atlanta--Northwest                             $54.32                   $52.82                    $53.64
   Atlanta--Peachtree Corners                     $46.09                   $46.31                    $46.14
   Savannah                                       $56.31                   $54.18                    $54.85
Iowa
   Des Moines--West                               $52.03                   $54.81                    $54.51
Illinois
   Bloomington--Normal                            $59.87                   $58.71                    $59.08
   Peoria                                         $56.19                   $52.62                    $49.99
   Rockford                                       $49.80                   $47.28                    $50.76
Indiana
   Indianapolis--Castleton                        $53.84                   $52.99                    $60.09
   Indianapolis--College Park                     $51.98                   $48.27                    $52.36
Kansas
   Kansas City--Merriam                           $49.40                   $48.56                    $53.79
   Kansas City--Overland Park                     $56.06                   $55.32                    $57.29
Michigan
   Detroit--Airport                               $61.68                   $70.06                    $71.48
   Detroit--Auburn Hills                          $59.76                   $64.86                    $73.08
   Detroit--Madison Heights                       $64.57                   $62.31                    $61.54
   Detroit--Warren                                $53.57                   $55.62                    $58.63
   Detroit--West (Canton)                         $57.62                   $60.96                    $63.33
   Kalamazoo                                      $54.90                   $54.22                    $54.12
Missouri
   St. Louis--Hazelwood                           $50.38                   $50.01                    $45.66
North Carolina
   Charlotte--Northeast                           $45.86                   $47.68                    $47.05
   Durham                                         $51.87                   $51.57                    $51.08
   Fayetteville                                   $59.80                   $53.55                    $48.21
   Greensboro                                     $57.26                   $57.64                    $59.71
   Raleigh--Northeast                             $48.68                   $51.20                    $54.63
   Wilmington                                     $54.11                   $56.26                    $56.02


                                       13
<PAGE>

Ohio
   Cleveland--Airport                             $55.03                   $56.20                    $60.03
   Columbus--North                                $53.77                   $49.86                    $50.29
   Dayton--North                                  $52.25                   $52.04                    $59.56
   Toledo--Holland                                $51.69                   $52.52                    $54.00
South Carolina
   Florence                                       $53.45                   $51.53                    $52.60
   Greenville                                     $44.75                   $45.37                    $46.84
   Hilton Head                                    $65.22                   $64.28                    $57.08
Tennessee
   Johnson City                                   $50.88                   $46.00                    $44.10
Virginia
   Hampton                                        $57.94                   $51.50                    $49.02
   Virginia Beach                                 $59.67                   $54.89                    $53.34
Wisconsin
   Madison                                        $52.13                   $48.45                    $48.93
   Milwaukee--Brookfield                          $56.46                   $52.95                    $54.06

Total Average Room Rate                          $54.31                   $53.48                    $54.06
</TABLE>

Real Estate Taxes

         Real estate taxes billed and rates in 2002 for each of the Inns were:

<TABLE>
<CAPTION>
Location of Inn                                    Billing                   Rate(1)
---------------                                    -------                   -------
<S>                                              <C>                       <C>
Alabama
   Birmingham--Homewood                            $41,781                   1.50%
California
   Los Angeles--Buena Park                         $46,834                   1.15%
   Los Angeles--Placentia                          $51,153                   1.15%
Florida
   Gainesville                                     $62,981                   2.42%
   Miami--West                                     $69,005                   2.10%
   Orlando--International Drive                    $96,582                   2.05%
   Orlando--South                                  $50,919                   1.99%



                                       14
<PAGE>

Georgia
   Atlanta--Airport                                $36,130                   1.27%
   Atlanta--Gwinnett Mall                          $46,631                   1.28%
   Atlanta--Northlake.                             $86,142                   1.51%
   Atlanta--Northwest                              $87,602                   2.08%
   Atlanta--Peachtree Corners                      $44,618                   1.27%
   Savannah                                        $77,360                   1.69%
Iowa
   Des Moines--West                                $98,585                   3.19%
Illinois
   Bloomington--Normal                             $77,806                   2.36%
   Peoria                                         $101,953                   2.65%
   Rockford                                       $127,666                   3.59%
Indiana
   Indianapolis--Castleton                         $46,932                   2.12%
   Indianapolis--College Park                      $49,540                   2.20%
Kansas
   Kansas City--Merriam                            $71,692                   2.50%
   Kansas City--Overland Park                      $68,769                   2.16%
Michigan
   Detroit--Airport                                $80,126                   2.49%
   Detroit--Auburn Hills                           $88,523                   1.23%
   Detroit--Madison Heights                       $118,234                   2.21%
   Detroit--Warren                                 $63,686                   1.72%
   Detroit--West (Canton)                          $60,788                   1.66%
   Kalamazoo                                       $58,520                   2.04%
Missouri
   St. Louis--Hazelwood                            $87,648                   2.92%
North Carolina
   Charlotte--Northeast                            $32,771                   1.31%
   Durham                                          $38,846                   1.30%
   Fayetteville                                    $64,271                   1.46%
   Greensboro                                      $30,725                   1.24%
   Raleigh--Northeast                              $27,756                   0.95%
   Wilmington                                      $35,527                   1.16%
Ohio
   Cleveland--Airport                             $102,936                   2.04%
   Columbus--North                                 $59,630                   2.33%
   Dayton--North                                   $60,451                   1.90%
   Toledo--Holland                                 $38,397                   1.41%
South Carolina
   Florence                                        $34,931                   1.25%
   Greenville                                      $48,082                   1.76%
   Hilton Head                                     $55,261                   1.40%
Tennessee
   Johnson City                                    $39,850                   1.63%
Virginia
   Hampton                                         $24,185                   0.69%
   Virginia Beach                                  $44,735                   1.22%

Wisconsin
   Madison                                         $62,168                   2.28%
   Milwaukee--Brookfield                           $58,172                   1.61%
</TABLE>


                                       15
<PAGE>

         (1)  The real estate tax rates calculated by dividing the 2002 tax
              liability by the 2002 assessed value of the property.

ITEM 3.  LEGAL PROCEEDINGS

         None

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report through the
solicitation of proxies or otherwise.


                                       16
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY HOLDER MATTERS

         Units of the Partnership are not publicly traded. There are certain
restrictions set forth in the Partnership's amended limited partnership
agreement (the "Limited Partnership Agreement") that may limit the ability of a
limited partner to transfer Units. Such restrictions could impair the ability of
a limited partner to liquidate its investment in the event of an emergency or
for any other reason.

         As of March 1, 2003, there were 2,484 holders of Units of the
Partnership, owning an aggregate of 83,337 Units.

         The Partnership made a distribution of $2.4 million during the year
ended December 31, 2002 and none during the year ended December 31, 2001. See
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations", for a discussion of additional factors which may affect the
Partnership's ability to pay distributions.

         Over the past few years, many companies have begun making
"mini-tenders" (offers to purchase an aggregate of less than 5% of the total
outstanding Units) for Units. Pursuant to the rules of the Securities and
Exchange Commission, when a tender offer is commenced for Units, the Partnership
is required to provide limited partners with a statement setting forth whether
it believes limited partners should tender or whether it is remaining neutral
with respect to the offer. Unfortunately, the rules of the Securities and
Exchange Commission do not require that the bidders in certain tender offers
provide the Partnership with a copy of their offer. As a result, the general
partner often does not become aware of such offers until shortly before they are
scheduled to expire or even after they have expired. Accordingly, the general
partner does not have sufficient time to advise limited partners of its position
on the tender. In this regard, please be advised that pursuant to the
discretionary right granted to the general partner of the Partnership in the
Limited Partnership Agreement to reject any transfers of Units, the general
partner will not permit the transfer of any Unit in connection with a tender
offer unless: (i) the Partnership is provided with a copy of the bidder's
offering materials, including amendments thereto, simultaneously with their
distribution to the limited partners; (ii) the offer provides for withdrawal
rights at any time prior to the expiration date of the offer and, if payment is
not made by the bidder within 60 days of the date of the offer, after such 60
day period; and (iii) the offer must be open for at least 20 business days and,
if a material change is made to the offer, for at least 10 business days
following such change.


                                       17
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

         The following table presents selected historical financial data for
each of the five years in the period ended December 31, 2002, which data has
been derived from our audited financial statements for those years. You should
read the following selected financial data together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our audited financial statements included herein.

                             Selected Financial Data
             (in thousands, except per unit amounts and ratio data)

<TABLE>
<CAPTION>
                                              2002          2001          2000          1999          1998
                                              ----          ----          ----          ----          ----
<S>                                         <C>          <C>          <C>           <C>           <C>
Income Statement Data:
  Revenues                                   $78,797      $ 83,865     $ 91,478      $ 93,084      $ 94,370
  Operating (loss) profit                        (3)           496      (2,848)         3,885         (522)
  Net (loss) income                          (8,548)      (11,472)        8,709       (8,552)      (12,999)
  Net (loss) income per limited
    partner unit (83,337 Units)                (102)         (136)          103         (102)         (154)
Balance Sheet Data:
  Total assets                              $114,901      $136,967     $147,082      $163,574      $173,064
  Total liabilities                          150,650       161,768      160,411       185,612       186,550
Other Data (unaudited):
  Cash distributions per limited              $28.51            --           --            --            --
    partner unit (83,337 Units)
  Deficiency of earnings to fixed             $8,548       $11,472      $14,774       $ 8,552       $12,999
    charges
</TABLE>


                                       18
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

            Certain matters discussed herein are forward-looking statements. We
have based these forward-looking statements on our current expectations and
projections about future events. Certain, but not necessarily all, of such
forward-looking statements can be identified by the use of forward-looking
terminology, such as "believes," "expects," "may," "will," "should,"
"estimates," or "anticipates," or the negative thereof or other variations
thereof or comparable terminology. All forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause our actual
transactions, results, performance or achievements to be materially different
from any future transactions, results, performance or achievements expressed or
implied by such forward- looking statements. Although we believe the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, we can give no assurance that our expectations will be
attained or that any deviations will not be material. We disclaim any
obligations or undertaking to publicly release any updates or revisions to any
forward-looking statement contained in this report on Form 10-K to reflect any
change in our expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.

GENERAL

         The Partnership is the owner of 46 limited service Inns, which are
operated as part of the Fairfield Inn by Marriott system, and until November 30,
2001, managed by Fairfield FMC Corporation. Beginning November 30, 2001, Sage
began providing management at the properties. Under Sage the Inns continue to be
operated under the Fairfield Inn by Marriott system.

         During the period from 2000 through 2002, the Partnership's revenues
declined from $91.5 million to $78.8 million. The Partnership's revenues are
primarily a function of room revenues generated per available room or "RevPAR."
RevPAR represents the combination of the average daily room rate charged and the
average daily occupancy achieved and is a commonly used indicator of hotel
performance. During the period from 2000 through 2002, the Partnership's
combined RevPAR decreased approximately 13% from $36.76 to $32.15.

         As a result of the decline in the economy, combined with the effect of
the September 11, 2001 terrorist attacks, the hospitality and travel industry
experienced a significant decrease in operations beginning in the second half of
2001 and throughout 2002. Further exacerbating this decrease is the age of the
Partnership's Inns (between 13 and 16 years old) that causes disadvantages when
competing with newer limited service hotels. The Partnership's revenues
decreased $5.1 million, or 6.0%, to $78.8 million in 2002 from $83.9 million in
2001, primarily as a result of decreases in occupancy, which had been flat or
decreasing throughout 2002.

         The Partnership's operating costs and expenses are, to a great extent,
fixed. Therefore, the Partnership derives substantial operating leverage from
increases in revenue. Operating leverage is offset primarily by certain variable
expenses, including base and incentive management fees which are calculated
based on Inn sales.

         The table below presents performance information for the Inns for the
indicated periods:

<TABLE>
<CAPTION>
                                                      2002             2001             2000
                                                      ----             ----             ----
<S>                                                <C>              <C>            <C>
         As of December 31,
         ------------------
         Number of properties                           46               50               50
         Number of rooms                             6,138            6,675            6,676

         Year ended December 31,
         -----------------------
         Average daily rate                         $54.31           $53.48           $54.06
         Occupancy                                   59.2%            62.0%            68.0%
         RevPAR                                     $32.15           $33.14           $36.76
         % RevPAR change                            (3.0%)           (9.8%)           (1.2%)
</TABLE>


                                       19
<PAGE>

RESULTS OF OPERATIONS

         The following discussion and analysis addresses results of operations
for the three years ended December 31, 2002 and should be read together with the
"Selected Financial Data" and historical financial statements and related notes
included elsewhere herein.

2002 compared to 2001

         Rooms Revenues: Rooms revenues decreased $4.8 million, or approximately
5.9% to $76.7 million in 2002 from $81.5 million in 2001, reflecting a 2.8
percentage point decrease in average occupancy to 59.2%. The decrease in average
occupancy was primarily the result of the increased competition in the economy
segment which was exacerbated by the general downturn in the economy experienced
during 2002, which hurt the hospitality industry in general. Revenues also
declined due to the sale of four of the Partnership's hotels during 2002.
Excluding the effect on revenues of the sale of these four hotels, rooms
revenues for the remaining 46 inns decreased $3.0 million, or approximately 3.9%
to $73.0 million in 2002 from $76.0 million in 2001. In 2002, total Inn revenues
decreased $5.1 million, or 6.0%, to $78.8 million when compared to $83.9 million
in 2001.

         Operating Expenses:  Operating expenses decreased $4.6 million, or
5.5%, to $78.8 million when compared to 2001. The individual components are
discussed below.

         Room Costs: In 2002, rooms costs decreased $1.1 million, or 4.2%, to
$25.3 million when compared to 2001. The overall decrease in controllable room
costs is a result of the occupancy decreases at the Inns. Room costs in 2002
were also lower due to the sale of four of the hotels during 2002.

         Selling, Administrative and other: Selling, administrative and other
expenses decreased by $1.3 million in 2002 to $25.8 million, or a 4.8% decrease
when compared to 2001. The decrease in expenses was due to a decrease in repairs
and maintenance expenses.

         Fairfield Inn system fee: In connection with the Partnership's
termination of the management agreement with Fairfield FMC Corporation on
November 30, 2001, the Partnership's obligation to pay system fees is now
included in its franchise fees paid to Marriott International. In 2001, the
Partnership recognized $2.4 million in Fairfield Inn system fee expenses.

         Insurance and other: Insurance and other expenses decreased by $1.1
million in 2002 to $3.0 million, or a 26% decrease when compared to 2001. The
decrease in expense is primarily due the following expenses incurred in 2001:
the payment of a franchise application fee of $500,000 to Marriott International
in connection with the new franchise agreement, legal expenses incurred in
connection with the restructuring, and expenses associated with the transition
of the management of the Inns from Marriott International to Sage.

         Termination of management agreement: In connection with the termination
of the Management Agreement with Fairfield FMC Corporation, the Partnership paid
Marriott International $500,000 and wrote off deferred incentive fees of $2.8
million as the fees were no longer due.

         Loss on impairment of long-lived assets: In 2002, the Partnership
recorded impairment of long-lived assets of $5.3 million related to its Inns
located in Atlanta (Northlake), Georgia; Birmingham, Alabama; Detroit (Warren),
Michigan; St. Louis (Hazelwood), Missouri; Greenville, South Carolina; and
Orlando (South), Florida. The Partnership recorded an impairment charge of $3.8
million in 2001 related to the Inns located in Greenville, South Carolina;
Charlotte (Northeast), North Carolina; Charlotte (Airport), North Carolina;
Chicago (Lansing), Illinois; Atlanta (Southlake), Georgia; and Atlanta
(Peachtree Corners), Georgia.

         Operating (Loss) Profit: As a result of the changes in revenues and
operating expenses discussed above, operating loss increased by $499,000,
resulting in an operating loss of $3,000 in 2002 compared to operating profit of
$496,000 in 2001.


                                       20
<PAGE>

         Interest Expense:  Interest expense decreased by $530,000 to $12.3
million in 2002 when compared to 2001. This decrease is due to the payment of
$11.4 million of principal on the mortgage debt.

         Gain on Disposition of Properties: During 2002, the Partnership
recorded gain on disposition of properties of $3.5 million related to the sale
of its Inns located in Montgomery, Alabama; Charlotte-Airport, North Carolina;
Atlanta-Southlake, Georgia; and Chicago-Lansing, Illinois.

         Net Loss: Net loss for 2002 was $8.5 million compared to net loss of
$11.5 million for 2001. The decrease is primarily due to the $3.5 million gain
on disposition of four of the Partnership's properties and decreases in
operating expenses, offset by the decrease in revenues.

2001 compared to 2000

         Rooms Revenues: Rooms revenues decreased $7.8 million, or approximately
8.7%, to $81.5 million in 2001 from $89.3 million in 2000, reflecting a 6.0
percentage point decrease in average occupancy to 62.0% and the $0.58 decrease
in the average daily room rate to $53.48. The decrease in average occupancy was
primarily the result of increased competition in the economy segment and
exacerbated by the September 11, 2001 terrorist attacks, which hurt the
hospitality industry in general. In 2001, total Inn revenues decreased $7.6
million, or 8.3%, to $83.9 million when compared to 2000.

         Operating Expenses: Operating expenses decreased $11 million, or 11.6%,
to $83.4 million when compared to 2000. The individual components are discussed
below.

         Rooms Costs: In 2001, rooms costs decreased $1.5 million, or 5.5%, to
$26.4 million when compared to 2000. The overall decrease in controllable room
costs is a result of the occupancy decreases at the Inns. Room costs in 2001
were also lower due to the implementation of the Guestview reservation system in
2000.

         Selling, Administrative and other: Selling, administrative and other
expenses decreased by $0.6 million in 2001 to $27.1 million, or a 2.0% decrease
when compared to 2000. The decrease in expenses was due to a decrease in labor
costs, repairs and maintenance expenses.

         Insurance and other: Insurance and other expenses increased $2.9
million in 2001 as compared to 2000. This increase is primarily due to the
payment of a franchise application fee of $500,000 to Marriott International in
connection with the new franchise agreement, legal expenses incurred in
connection with the restructuring, expenses associated with the transition of
the management of the Inns from Marriott International to Sage and payments to
the special servicer on the loan and the rating agencies relating to the loan
modifications.

         Termination of Management Agreement: In connection with the termination
of the Management Agreement with Fairfield FMC Corporation, $2.0 million and
$2.8 million of incentive fees earned in 2001 and 2000, respectively, were no
longer due under the terms of the Management Agreement. Deferred incentive fees
of $2.8 million related to 2000, net of a $500,000 payment to the Manager, have
been reflected in the 2001 statement of operations in the line titled
Termination of Management Agreement. Incentive fees for 2001 were not recognized
in the 2001 statement of operations due to the termination of the Management
Agreement with Fairfield FMC Corporation.

         Loss on impairment of long-lived assets: In 2001, the Partnership
recorded impairment of long-lived assets of $3.8 million related to our Inns
located in Greenville, South Carolina; Charlotte-Northeast, North Carolina;
Charlotte Airport, North Carolina; Chicago-Lansing, Illinois; Atlanta-Southlake,
Georgia; and Atlanta-Peachtree Corners, Georgia. The Partnership recorded an
impairment charge of $8.1 million in 2000 related to the Inns located in Johnson
City, Tennessee; Raleigh and Charlotte Airport, North Carolina; and Columbus
North, Ohio.

         Operating Profit (Loss): As a result of the changes in revenues and
operating expenses discussed above, operating loss decreased by $3.3 million,
resulting in operating income of $496,000 for 2001, when compared to an
operating loss of $2.8 million in 2000.


                                       21
<PAGE>

         Interest Expense:  Interest expense decreased by $0.4 million to $12.8
million in 2001 when compared to 2000. This decrease is due to the payment of
$4.4 million of principal on the mortgage debt.

         Loss Before Extraordinary Item: The Partnership generated a net loss of
$11.5 million in 2001 compared to a loss before extraordinary item of $14.8
million in 2000. This decreased loss is primarily due to the gain on forgiveness
of incentive management fees and decreases in operating expenses which were
partially offset by the decrease in revenues discussed above.

         Extraordinary Gain: In connection with the class action litigation
settlement agreement that became effective in 2000, Fairfield FMC Corporation,
the previous manager of all our Inns, waived $23.5 million of deferred incentive
management fees.

         Net Income (Loss): Net loss for 2001 was $11.5 million compared to net
income of $8.7 million for 2000. The decrease is primarily due to the $23.5
million of deferred management fees waived in 2000 and lower revenues in 2001,
offset by the gain on termination of the incentive management fees in 2001 and
decreases in operating expenses.

LIQUIDITY AND CAPITAL RESOURCES

         GOING CONCERN AND OTHER IMPORTANT RISK FACTORS: Adequate liquidity and
capital are critical to the Partnership's ability to continue as a going
concern. The Partnership's Inns have experienced a substantial decline in
operating results over the past several years. Since 1998, the Partnership's
annual revenues have declined each year, from $94.4 million in 1996 to $78.8
million in 2002. The Partnership did not have sufficient cash flow from current
operations to make its required debt service payment in November 2002, nor did
it have sufficient cash flow to make its property improvement fund contributions
beginning in September 2002. These factors and those discussed below raise
substantial doubt about the Partnership's ability to continue as a going
concern.

         The Partnership has faced increasing needs to make substantial capital
improvements to its Inns to enable it to compete more effectively in the markets
and to satisfy standards for the Fairfield Inn brand, as required by the
franchise agreements. The Partnership had approximately $5.9 million of
unrestricted cash as of December 31, 2002. In addition, the Partnership had
approximately $2.8 million in its property improvement fund as of December 31,
2002.

         Further to the slowdown in the hotel industry (due to softness in the
economy), the September 11th terrorist attacks have caused general travel in the
United States to significantly decline, thereby further exacerbating the
Partnership's financial difficulties. The Partnership had significant declines
in occupancy levels and RevPAR in the fourth quarter of 2001 as a result. While
the Partnership is working with Sage to attempt to offset this trend, the
Partnership's results in 2002 were also below historical levels.

         The Partnership had $135.7 million of mortgage debt outstanding as of
December 31, 2002. The annual principal and interest debt service requirements
are approximately $17 million. As of November 11, 2002, the Partnership is in
default under the mortgage loan agreement due to its failure to pay the
regularly scheduled debt service payment due on that date. The Partnership is
also in default under the franchise agreements with Marriott International due
to its failure to make its property improvement fund contributions beginning in
September 2002, also resulting in technical default under the mortgage loan
agreement. The Partnership has requested from the lender further modifications
to the mortgage loan agreement. These modifications included paying debt service
solely from available cash flow, selling certain of the Partnership's properties
and applying the proceeds from the sales toward replenishing reserves held by
the lender. If the lender is unwilling to grant the requested modifications the
Partnership may be required to seek protection by filing for bankruptcy or the
Partnership's properties may be lost through foreclosure.


                                       22
<PAGE>

         There can be no assurances that the Partnership will be able to improve
operations, or obtain the additional financing that may be required to meet
operating needs in the future, and make the necessary PIPs to avoid default
under the Partnership's franchise agreements with Marriott International. The
above factors raise substantial doubt about the Partnership's ability to
continue as a going concern.

         PRINCIPAL SOURCES AND USES OF CASH: The Partnership's principal source
of cash has been cash from operations. The Partnership's principal uses of cash
are to make debt service payments, fund the property improvement fund and
maintain reserves required pursuant to the terms of the mortgage debt.

         The Partnership's cash and cash equivalents increased to $5.9 million
at December 31, 2002 compared to $5.4 million at December 31, 2001. The increase
from the prior year is due to $6.5 million of cash provided by operating
activities and $8.7 million of cash provided by investing activities, which were
partially offset by $14.6 million of cash used in financing activities. Cash
provided by investing activities consisted of the proceeds from the sales of
four of the Partnership's inns, offset by contributions to the property
improvement fund and capital improvements and equipment purchases. Cash used in
financing activities consisted of principal payments on the Partnership's
mortgage loan, a distribution to partners, and changes to the restricted cash
reserves as required under the terms of the mortgage debt.

         SALES OF PROPERTIES. On July 29, 2002, the Partnership sold its Inn
located in Montgomery, Alabama (classified as property held for sale on the
accompanying balance sheet) for $3.1 million. The net proceeds from the sale of
approximately $2.9 million were applied toward the Partnership's mortgage debt,
in accordance with the terms of the loan agreement. The Partnership recognized a
gain on the sale of approximately $2.1 million.

         On August 12, 2002, the Partnership sold its Inn located in Charlotte
(Airport), North Carolina (classified as property held for sale on the
accompanying balance sheet) for $2.5 million. The net proceeds from the sale of
approximately $300,000, which is net of approximately $1.9 million attributed to
the ground lease buyout, were applied toward the Partnership's mortgage debt, in
accordance with the terms of the loan agreement. The Partnership recognized a
gain on the sale of approximately $200,000.

         On August 14, 2002, the Partnership sold its Inn located in Atlanta
(Southlake), Georgia (classified as property held for sale on the accompanying
balance sheet) for $3.0 million. The net proceeds from the sale of approximately
$2.8 million were applied toward the Partnership's mortgage debt, in accordance
with the terms of the loan agreement. The Partnership recognized a gain on the
sale of approximately $200,000.

         On October 9, 2002, the Partnership sold its Inn located in Chicago
(Lansing), Illinois (classified as property held for sale on the accompanying
balance sheet) for $2.3 million. The net proceeds from the sale of approximately
$1.4 million, which is net of approximately $700,000 attributed to the ground
lease buyout, were applied toward the Partnership's mortgage debt, in accordance
with the terms of the loan agreement. The Partnership recognized a gain on the
sale of approximately $1.1 million.

         In addition, the Partnership had been marketing its Inns located in
Charlotte (Northeast), North Carolina, Columbus, Ohio, Raleigh (Northeast),
North Carolina and Orlando (South), Florida, all classified as properties held
for sale on the accompanying balance sheet. These properties had been marketed
with the consent of the Partnership's lender. However, the consent may not be
valid if an event of default exists. As described above, the Partnership is in
default and as such, lender's consent to a sale may be withheld. There can be no
assurance that any of these Inns will ultimately be sold. Therefore, the
Partnership reclassified these Inns from properties held for sale and began
depreciating their net book values in the first quarter of 2003, after the
Partnership determined to no longer market these Inns for sale.

         SHORTFALL IN FUNDS AVAILABLE FOR CAPITAL EXPENDITURES: In light of the
age of the Partnership's Inns, which range from 13 to 16 years, major capital
expenditures are required over the next several years in an effort to remain
competitive in the markets where the Partnership operates and to satisfy brand
standards required by the franchise agreement. These capital expenditures
include room refurbishments planned for 22 of the Inns over the next several
years and the replacement of roofs, facades, carpets, wall vinyl and furniture.
The capital expenditure needs for the Partnership's Inns for 2002 and 2003 are
estimated to total approximately $19 million.


                                       23
<PAGE>

         The cost of future capital expenditures for the Partnership's inns is
estimated to exceed available funds. The Partnership's property improvement fund
became insufficient to meet anticipated capital expenditures in 1999 and
continued to be insufficient through 2002. To address this shortfall, the
Partnership deposited an additional $2.4 million into the property improvement
fund during 1999 from its Partnership cash beyond the required contributions. In
addition, the contribution rate to the property improvement fund was increased
to 7% of gross sales for 1997 and thereafter. The Partnership contributed $3.5
million and $5.8 million during 2002 and 2001, respectively, to the property
improvement fund.

         Based upon information provided by Sage, the estimated property
improvement fund shortfall is expected to be $6.2 million of projected capital
expenditure requirements by the end of 2003. Until the Partnership reaches a
resolution concerning funding of the Partnership's operating and capital
expenditure shortfalls, any proposed capital expenditures exceeding the amount
available in the property improvement fund will be deferred.

         In 2002, the Partnership received a private complaint with respect to
its Birmingham, Alabama property that it was not ADA compliant. The Partnership
negotiated a settlement agreement which provided for the scope of work to be
complete. It is believed that the cost of such work will not exceed $125,000.

         In accordance with the property improvement plan with Marriott
International, the Partnership is required to provide evidence by no later than
November 30, 2003 that at least $23 million has been set aside to complete a
portion of these capital improvements. If the capital improvements are not
completed, the Franchise Agreement could be terminated and the Inns could not be
operated as a "Fairfield Inn by Marriott". However, given the partnership's
current financial condition, the partnership may be unable to bear the costs
associated with becoming part of a nationally recognized hotel system. If this
were to occur, which is likely, the Partnership would seek to become part of a
comparable, nationally recognized hotel system in order to continue to comply
with the obligations under its loan documents. However, given the Partnership's
current financial condition, the Partnership may be unable to bear the costs
associated with becoming part of a nationally recognized hotel system. If the
Partnership is unable to retain another nationally recognized manager, it could
significantly impair its revenues and cash flow.

Recently Issued Accounting Standards

         Financial Accounting Standards Board ("FASB") SFAS No. 144 "Accounting
for Impairment or Disposal of Long-Lived Assets" supersedes SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The standard provides guidance beyond that previously specified
in Statement 121 to determine when a long-lived asset should be classified as
held for sale, among other things. This Statement was adopted by the Partnership
effective January 1, 2002. Implementation of the statement did not have a
material effect on the Partnership.

         SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of SFAS No. 13 and Technical Corrections," updates, clarifies and
simplifies existing accounting pronouncements. In part, this statement rescinds
SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt." SFAS No.
145 will be effective for fiscal years beginning after May 15, 2002. Upon
adoption, enterprises must reclassify prior period items that do not meet the
extraordinary item classification criteria in APB Opinion No. 30. The
Partnership does not expect that this statement will have a material effect on
its financial statements.

         SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities" requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Examples of costs covered by the
standard include lease termination costs and certain employee severance costs
that are associated with a restructuring, discontinued operation, plant closing
or other exit or disposal activity. SFAS No. 146 is effective prospectively for
exit and disposal activities initiated after December 31, 2002, with earlier
adoption encouraged. The Partnership does not expect that this statement will
have a material effect on its financial statements.

         FASB Interpretation No. 45, "Guarantors' Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others" elaborates on the disclosures to be made by a guarantor in its financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to


                                       24
<PAGE>

recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. This Interpretation does not
prescribe a specific approach for subsequently measuring the guarantor's
recognized liability over the term of the related guarantee. The disclosure
provisions of this Interpretation are effective for the Partnership's December
31, 2002 financial statements. The initial recognition and initial measurement
provisions of this Interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. This Interpretation had
no effect on the Partnership's financial statements.

         FASB Interpretation No. 46, "Consolidation of Variable Interest
Entities" clarifies the application of existing accounting pronouncements to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. The provisions of the Interpretation will be
immediately effective for all variable interests in variable interest entities
created after January 31, 2003, and the Partnership will need to apply its
provisions to any existing variable interests in variable interest entities by
no later than December 31, 2004. The Partnership does not expect that this will
have an impact on its financial statements.

Critical Accounting Policies

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions in certain circumstances that affect amounts reported
in the accompanying financial statements and related footnotes. In preparing
these financial statements, management has made its best estimates and judgments
of certain amounts included in the financial statements, giving due
consideration to materiality. The Partnership does not believe there is a great
likelihood that materially different amounts would be reported related to the
accounting policies described below. However, application of these accounting
policies involves the exercise of judgment and use of assumptions as to future
uncertainties and, as a result, actual results could differ from these
estimates.

         Impairment of long-lived assets: At December 31, 2002 and 2001, the
Partnership had $99.6 million and $110.0 million of property and equipment
(net), and $1.1 million and $5.7 million of properties held for sale, accounting
for approximately 88% and 85%, respectively, of the Partnership's total assets.
Property and equipment is carried at cost but is adjusted to fair value if there
is an impairment loss.

            During the years ended December 31, 2002, 2001, and 2000, the
Partnership recognized $5.2 million, $3.8 million, and $8.1 million,
respectively, of impairment losses related to its property and equipment. An
impairment loss must be recorded for an Inn if estimated undiscounted future
cash flows are less than the book value of the Inn. Impairment losses are
measured based on the estimated fair value of the Inn. The Partnership bases its
estimates of fair values primarily upon tax assessments and sales comparisons.
In assessing the recoverability of the Partnership's property and equipment the
Partnership must consider the forecasted financial performance of its
properties. If these estimates or their related assumptions change in the
future, the Partnership may be required to record additional impairment charges.

         Useful lives of long-lived assets: Property and equipment, and certain
other long-lived assets, are amortized over their useful lives. Useful lives are
based on management's estimates of the period that the assets will generate
revenue.

         Deferred ground rent: Deferred ground rent payable to Marriott
International and its affiliates at December 31, 2002 and 2001 was $4.7 million
and $2.2 million, respectively, and is included in Due to Marriott
International, Inc., affiliates and other on the accompanying balance sheet. The
Partnership's deferred ground rent of $2.2 million that remained payable at
November 30, 2001 was waived in accordance with the amended lease agreement that
was entered between the Partnership and Marriott International and its
affiliates. The amount of deferred ground rent waived as a result of the ground
lease amendment will be recognized as a reduction in ground rent expense over
the remaining life of the new lease term, which has been extended to November
30, 2098, since it represents a new operating lease as of November 30, 2001, for
accounting purposes. Ground rent expense is recognized on a straight-line basis
over the term of the lease. The excess of ground rent expense recognized over
rental payments required by the lease agreement of $2.5 million is deferred at
December 31, 2002.


                                       25
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

         The Partnership is not subject to market risk with respect to interest
rates, foreign currency exchanges or other market rate or price risk, and we do
not hold any financial instruments for trading purposes. As of December 31,
2002, all of the Partnership's debt has a fixed interest rate.


                                       26
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEX TO FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

Report of Independent Auditors...........................................   28

Report of Independent Public Accountants.................................   30

Balance Sheets as of December 31, 2002 and 2001..........................   31

Statements of Operations for the years ended
 December 31, 2002, 2001 and 2000........................................   32

Statements of Changes in Partners' Capital (Deficit) for the
 years ended December 31, 2002, 2001 and 2000............................   33

Statements of Cash Flows for the years ended
 December 31, 2002, 2001 and 2000........................................   34

Notes to Financial Statements............................................   35


                                       27
<PAGE>

                         Report of Independent Auditors

To the Partners
Fairfield Inn by Marriott Limited Partnership

We have audited the accompanying balance sheet of Fairfield Inn by Marriott
Limited Partnership as of December 31, 2002, and the related statements of
operations, changes in partners' capital (deficit), and cash flows for the year
then ended. Our audit also included the financial statement schedule listed in
the Index at Item 15(a). These financial statements and schedule are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audit. The
financial statements and schedule of Fairfield Inn by Marriott Limited
Partnership for the years ended December 31, 2001 and 2000, were audited by
other auditors who have ceased operations and whose report dated March 18, 2002,
included an explanatory paragraph that raised substantial doubt about the
Partnership's ability to continue as a going concern. The financial statements
on which they reported were before giving effect to the revision adjustments and
disclosures described in Note 9.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the 2002 financial statements referred to above present fairly,
in all material respects, the financial position of Fairfield Inn by Marriott
Limited Partnership at December 31, 2002, and the results of its operations and
its cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule as of and for the year ended December 31, 2002,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

The accompanying financial statements have been prepared assuming that Fairfield
Inn by Marriott Limited Partnership will continue as a going concern. As more
fully described in Note 1, the Partnership has incurred recurring operating
losses, has a partners' deficit and is in default on its mortgage loan, and its
ground leases and franchise agreements with Marriott International, Inc. These
conditions raise substantial doubt about the Partnership's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.


                                       28
<PAGE>

As discussed above, the financial statements of Fairfield Inn by Marriott
Limited Partnership as of December 31, 2001, and for the year then ended, were
audited by other auditors who have ceased operations. As described in Note 9,
these financial statements have been revised to reflect the components of
working capital on the balance sheet. We audited the adjustments in Note 9 that
were applied to revise the balance sheet as of December 31, 2001 and the
statement of cash flows for the year ended December 31, 2001. Our procedures
included (a) agreeing the adjusted amounts for cash, accounts receivable,
prepaid expenses and other current assets, and accounts payable to the
Partnership's underlying trial balances obtained from Management and (b) testing
the mathematical accuracy of the financial statements. In our opinion, such
adjustments and disclosures are appropriate and have been properly applied.
However, we were not engaged to audit, review, or apply any procedures to the
2001 financial statements of the Partnership other than with respect to such
adjustments and, accordingly, we do not express an opinion or any other form of
assurance on the 2001 financial statements taken as a whole.


                                       /s/ Ernst & Young LLP

Boston, Massachusetts
March 14, 2003,
except for Notes 1 and 7 as to which the date is
March 26, 2003


                                       29
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO THE PARTNERS OF FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP:


         We have audited the accompanying balance sheets of Fairfield Inn by
Marriott Limited Partnership (a Delaware limited partnership) as of December 31,
2001 and 2000, and the related statements of operations, changes in partners'
capital (deficit) and cash flows for the three years in the period ended
December 31, 2001. These financial statements are the responsibility of the
General Partner's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Fairfield Inn by
Marriott Limited Partnership as of December 31, 2001 and 2000, and the results
of its operations and its cash flows for the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

         The accompanying financial statements have been prepared assuming that
the partnership will continue as a going concern. As discussed in Note 1 to the
financial statements, the partnership has suffered recurring operating losses,
has a net capital deficiency, and the partnership may not be able to meet its
2002 debt obligations. These factors raise substantial doubt about the
partnership's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial statements
do not include any adjustments relating to recoverability of asset carrying
amounts or the amount of liabilities that might result should the partnership be
unable to continue as a going concern.

         Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index at Item
14(a)(2) is presented for the purpose of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in our audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.


                                       Arthur Andersen LLP

Vienna, Virginia
March 18, 2002

Note:
This is a copy of the audit report previously issued by Arthur Andersen LLP in
connection with Fairfield Inn by Marriott Limited Partnership's Annual Report on
Form 10-K for the year ended December 31, 2001. This report has not been
reissued by Arthur Andersen LLP in connection with this filing on Form 10-K.


                                       30
<PAGE>

                  FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP

                                 BALANCE SHEETS
                           December 31, 2002 and 2001
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                            2002         2001
                                                                       ---------    ---------
<S>                                                                  <C>           <C>
ASSETS
Property and equipment, net                                            $  99,626    $ 110,039
Properties held for sale                                                   1,122        5,709
Deferred financing costs, net of accumulated amortization                  1,875        2,451
Accounts receivable                                                        1,008          598
Due from manager                                                              --        1,469
Prepaid insurance and other current assets                                 1,270        1,576
Inventory                                                                    920        1,000
Due from Marriott International, Inc.                                        387          387
Property improvement fund                                                  2,785        5,220
Restricted cash                                                                8        3,127
Cash and cash equivalents                                                  5,900        5,391
                                                                       ---------    ---------

Total assets                                                           $ 114,901    $ 136,967
                                                                       =========    =========


LIABILITIES AND PARTNERS' DEFICIT
Mortgage debt in default                                               $ 137,070    $ 148,850
Due to Marriott International, Inc., affiliates and other in default       5,034        2,503
Accounts payable and accrued liabilities                                   8,546       10,415
                                                                       ---------    ---------

Total liabilities                                                        150,650      161,768
                                                                       ---------    ---------

Commitments and contingencies

PARTNERS' DEFICIT
General Partner cumulative net losses                                       (307)        (198)
Limited Partners cumulative net losses                                   (35,442)     (24,603)
                                                                       ---------    ---------

Total partners' deficit                                                  (35,749)     (24,801)
                                                                       ---------    ---------

Total liabilities and partners' deficit                                $ 114,901    $ 136,967
                                                                       =========    =========
</TABLE>


                 The accompanying notes are an integral part of
                          these financial statements.


                                       31
<PAGE>

                  FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP

                            STATEMENTS OF OPERATIONS
                  Years ended December 31, 2002, 2001 and 2000
                (in thousands, except Unit and per Unit amounts)

<TABLE>
<CAPTION>
                                                           2002        2001        2000
                                                       --------    --------    --------
<S>                                                   <C>         <C>         <C>
REVENUES
Rooms                                                  $ 76,727    $ 81,540    $ 89,308
Other                                                     2,070       2,325       2,170
                                                       --------    --------    --------

Total revenues                                           78,797      83,865      91,478
                                                       --------    --------    --------

OPERATING EXPENSES
Rooms                                                    25,277      26,373      27,894
Other department costs and expenses                       1,481       1,844       1,670
Selling, administrative and other                        25,799      27,135      27,701
                                                       --------    --------    --------

Total property-level costs and expenses                  52,557      55,352      57,265

Depreciation                                              9,465      11,647      13,463
Property taxes                                            3,480       4,048       3,886
Fairfield Inn system fee                                     --       2,409       2,744
Incentive management fee                                     --          --       2,849
Ground rent                                               2,607       2,665       2,964
Base management fee                                       2,404       1,712       1,830
Insurance and other                                       3,009       4,077       1,198
Termination of management agreement (Note 8)                 --      (2,349)         --
Loss on impairment of long-lived assets (Note 2)          5,278       3,808       8,127
                                                       --------    --------    --------

Total operating expenses                                 78,800      83,369      94,326
                                                       --------    --------    --------

OPERATING (LOSS) PROFIT                                      (3)        496      (2,848)
Interest expense                                        (12,315)    (12,845)    (13,238)
Interest income                                             223         727       1,312
Gain on disposition of properties (Note 4)                3,547          --          --
Other income                                                 --         150          --
                                                       --------    --------    --------

LOSS BEFORE EXTRAORDINARY ITEM                           (8,548)    (11,472)    (14,774)
EXTRAORDINARY ITEM
Gain on the forgiveness of incentive management fees         --          --      23,483
                                                       --------    --------    --------

NET (LOSS) INCOME                                      $ (8,548)   $(11,472)   $  8,709
                                                       ========    ========    ========

ALLOCATION OF NET (LOSS) INCOME
General Partner                                        $    (85)   $   (115)   $     87
Limited Partners                                         (8,463)    (11,357)      8,622
                                                       --------    --------    --------

                                                       $ (8,548)   $(11,472)   $  8,709
                                                       ========    ========    ========

NET (LOSS) INCOME PER LIMITED PARTNER UNIT
  (83,337 UNITS)                                       $   (102)   $   (136)   $    103
                                                       ========    ========    ========
</TABLE>

                 The accompanying notes are an integral part of
                          these financial statements.


                                       32
<PAGE>

                  FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP

              STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
                  Years ended December 31, 2002, 2001 and 2000
                                 (in thousands)

<TABLE>
<CAPTION>
                                 General         Limited
                                 Partner         Partners         Total
                                 --------        --------        --------
<S>                             <C>             <C>             <C>
Balance, December 31, 1999       $   (170)       $(21,868)       $(22,038)
Net income                             87           8,622           8,709
                                 --------        --------        --------

Balance, December 31, 2000            (83)        (13,246)        (13,329)
Net loss                             (115)        (11,357)        (11,472)
                                 --------        --------        --------

Balance, December 31, 2001           (198)        (24,603)        (24,801)
Distribution to partners              (24)         (2,376)         (2,400)
Net loss                              (85)         (8,463)         (8,548)
                                 --------        --------        --------

Balance, December 31, 2002       $   (307)       $(35,442)       $(35,749)
                                 ========        ========        ========
</TABLE>


                 The accompanying notes are an integral part of
                          these financial statements.


                                       33
<PAGE>

                  FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP

                            STATEMENTS OF CASH FLOWS
                  Years ended December 31, 2002, 2001 and 2000
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                           2002            2001            2000
                                                                       --------        --------        --------
<S>                                                                  <C>              <C>             <C>
OPERATING ACTIVITIES
Net (loss) income                                                      $ (8,548)       $(11,472)       $  8,709
Extraordinary gain on the forgiveness of incentive                           --              --         (23,483)
  management fees
Gain on disposition of properties                                        (3,547)             --              --
Depreciation                                                              9,465          11,647          13,463
Amortization of deferred ground rent                                        (23)             --              --
Deferral of incentive management fee                                         --              --           2,849
Amortization of deferred financing costs as interest expense                576             486             487
Amortization of mortgage debt premium                                      (350)           (350)           (350)
Loss on disposition of equipment                                             --              --              16
Loss on impairment of long-lived assets                                   5,278           3,808           8,127
Termination of management agreement                                          --          (2,849)             --
Changes in operating accounts:
         Due to/from Marriott International, Inc. and affiliates          2,554           2,636             106
         Receivables and other current assets                             1,365          (2,069)             --
         Accounts payable and accrued liabilities                        (1,619)            749            (335)
         Change in restricted reserves                                    1,327           1,518             913
                                                                       --------        --------        --------

Cash provided by operations                                               6,478           4,104          10,502
                                                                       --------        --------        --------

INVESTING ACTIVITIES
Additions to property and equipment                                      (4,155)         (9,190)         (6,682)
Proceeds from sale of properties                                         10,395              --              --
Change in property improvement fund                                       2,435             269          (1,603)
                                                                       --------        --------        --------

Cash provided by (used in) investing activities                           8,675          (8,921)         (8,285)
                                                                       --------        --------        --------

FINANCING ACTIVITIES
Repayment of mortgage debt                                              (11,430)         (4,369)         (3,978)
Distribution to partners                                                 (2,400)             --              --
Payment of ground lease buy-out                                          (2,606)             --              --
Change in restricted cash                                                 1,792           3,081            (598)
                                                                       --------        --------        --------

Cash used in financing activities                                       (14,644)         (1,288)         (4,576)
                                                                       --------        --------        --------

INCREASE(DECREASE) IN CASH AND                                              509          (6,105)         (2,359)
   CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS at beginning of year                            5,391           7,702          10,061
CASH OF THE INNS (Note 9), as restated                                       --           3,794              --
                                                                       --------        --------        --------
CASH AND CASH EQUIVALENTS at end of year                               $  5,900        $  5,391        $  7,702
                                                                       ========        ========        ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
         Cash paid for mortgage interest                               $ 11,185        $ 12,730        $ 13,121
                                                                       ========        ========        ========
</TABLE>

                 The accompanying notes are an integral part of
                          these financial statements.



                                       34
<PAGE>

NOTE 1. THE PARTNERSHIP

Description of the Partnership

         Fairfield Inn by Marriott Limited Partnership (the "Partnership"), a
Delaware limited partnership, was formed on August 23, 1989, to acquire, own and
operate 50 Fairfield Inn by Marriott properties (the "Inns"), which compete in
the economy segment of the lodging industry. Effective August 16, 2001,
AP-Fairfield GP LLC, a Delaware limited liability company, became the general
partner of the Partnership. See "Restructuring Plan" below. During the year
ended December 31, 2002, the Partnership sold four of its Inns, two of which
leased underlying land from Marriott International, Inc. ("Marriott
International"). See Note 4 "Sale of Inns" below.

As of December 31, 2002, the Partnership leased the land underlying 30 of the
Inns from Marriott International and certain of its affiliates (the "Ground
Leases"). Of the Partnership's 46 Inns, six are located in each of Georgia,
North Carolina and Michigan; four in each of Florida and Ohio; and three or less
in each of Alabama, California, Illinois, Iowa, Indiana, Kansas, Missouri, South
Carolina, Tennessee, Virginia and Wisconsin. Effective November 30, 2001, Sage
Management Resources III, LLC ("Sage" or "New Manager"), an affiliate of Sage
Hospitality Resources, LLC, began providing management at the properties. See
"Restructuring Plan" below. Prior to such date the Inns were managed by
Fairfield FMC Corporation (the "Former Manager"), a wholly-owned subsidiary of
Marriott International, as part of the Fairfield Inn by Marriott hotel system
under a long-term management agreement. Under Sage, the Inns continue to be
operated under the Fairfield Inn by Marriott system.

Inn operations commenced on July 31, 1990 (the "Closing Date") after 83,337
limited partnership interests (the "Units") were sold in a public offering for
$1,000 per Unit. Marriott FIBM One Corporation ("FIBM One") contributed $841,788
for a 1% general partnership interest and $1.1 million to establish the initial
working capital reserve of the Partnership at $1.5 million. In addition, FIBM
One had a 10% limited partnership interest in the Partnership while the
remaining 90% of the limited partnership interest is owned by outside parties.

Restructuring Plan

As a result of the Partnership's continued decline in operating results, which
is discussed below, the prior general partner, FIBM One LLC, developed a
restructuring plan for the Partnership. In connection with this plan, the
consent of limited partners of the Partnership was sought for the transfer of
FIBM One LLC's general partner interest in the Partnership to the current
general partner. Effective August 16, 2001, following the receipt of the
necessary consent to the transfer of the general partner interest, FIBM One LLC,
transferred its general partner interest in the Partnership to AP-Fairfield GP,
LLC (the "New General Partner"), which is affiliated with Apollo Real Estate
Advisors, L.P. and Winthrop Financial Associates.

Also, as part of the restructuring plan, the Partnership filed a Registration
Statement on Form S-1, in which the Partnership sought to offer its limited
partners the right to purchase $23 million in subordinated notes due in 2007
(the "Offering"). The proceeds of the Offering, were to be utilized for capital
improvements at the Inns. On January 6, 2003, the Partnership withdrew its Form
S-1 Registration Statement.

On November 30, 2001, the Restructuring Plan was implemented as the Partnership
(i) replaced the Former Manager at the Partnership's Inns with Sage, (ii)
entered into new Franchise Agreements with Marriott International, (iii) entered
into Ground Lease modifications which provide for substantially reduced rent for
the year 2002, and an extension of the term to November 30, 2098, and (iv)
agreed to complete the property improvement plans ("PIPs") required by Marriott
International at the Inns by no later than November 30, 2003.


                                       35
<PAGE>

Partnership Allocations and Distributions

Partnership allocations and distributions are generally made as follows:

         a. Cash available for distribution for each fiscal year will be
distributed quarterly as follows: (i) 99% to the limited partners and 1% to the
General Partner (collectively, the "Partners") until the Partners have received,
with respect to such fiscal year, an amount equal to the Partners' Preferred
Distribution (10% of the excess of original cash contributions over cumulative
distributions of net refinancing and sales proceeds ("Capital Receipts") on an
annualized basis); and (ii) remaining cash available for distribution will be
distributed as follows, depending on the amount of Capital Receipts previously
distributed:

                  (1) 99% to the limited partners and 1% to the General Partner,
         if the Partners have received aggregate cumulative distributions of
         Capital Receipts of less than 50% of their original capital
         contributions; or

                  (2) 90% to the limited partners and 10% to the General
         Partner, if the Partners have received aggregate cumulative
         distributions of Capital Receipts equal to or greater than 50% but less
         than 100% of their original capital contributions; or

                  (3) 80% to the limited partners and 20% to the General
         Partner, if the Partners have received aggregate cumulative
         distributions of Capital Receipts equal to 100% or more of their
         original capital contributions.

         b. Refinancing proceeds and sale proceeds from the sale or other
disposition of less than substantially all of the assets of the Partnership will
be distributed (i) 99% to the limited partners and 1% to the General Partner
until the Partners have received the then outstanding Partners' 12% Preferred
Distribution, as defined, and cumulative distributions of Capital Receipts equal
to 100% of their original capital contributions; and (ii) thereafter, 80% to the
limited partners and 20% to the General Partner.

         c. Sale proceeds from the sale of substantially all of the assets of
the Partnership will be distributed to the Partners pro-rata in accordance with
their capital account balances as adjusted to take into account gain or loss
resulting from such sale.

         d. Net profits for each fiscal year generally will be allocated in the
same manner in which cash available for distribution is distributed. Net losses
for each fiscal year generally will be allocated 99% to the limited partners and
1% to the General Partner.

         e. Gains recognized by the Partnership generally will be allocated in
the following order of priority: (i) to those Partners whose capital accounts
have negative balances until such negative balances are brought to zero; (ii) to
all Partners up to the amount necessary to bring the Partners' capital account
balances to an amount equal to their pro-rata share of the Partners' 12%
Preferred Distribution, as defined, plus their Net Invested Capital, as defined;
and (iii) thereafter, 80% to the limited partners and 20% to the General
Partner.

         f. For financial reporting purposes, profits and losses are allocated
among the Partners based on their stated interests in cash available for
distribution.


                                       36
<PAGE>

Going Concern Uncertainty, Liquidity and Financing Requirements

Adequate liquidity and capital are critical to the ability of the Partnership to
continue as a going concern. Annual revenues have declined each year, from $94.4
million in 1998 to $78.8 million in 2002. The decline in Inn operations is
primarily due to increased competition, over-supply of limited service hotels in
the markets where the Partnership's Inns operate, increased pressure on room
rates, lack of funds for capital improvements needed to make the Inns more
competitive in their marketplaces, and a slowdown in the economy resulting in a
softness in the lodging industry as a whole. Exacerbating this trend was the
impact of the events of September 11, 2001 which have had a significant
detrimental effect on the hospitality industry in general and the Inns in
particular as travel nationwide has severely decreased. The Partnership did not
have sufficient cash flow from current operations to make its required debt
service payments beginning in November 2002, nor did it have sufficient cash
flow to make its property improvement fund contributions beginning in September
2002.

The Partnership is not projecting improved results for 2003 over 2002.
Partnership cash, including $8,000 and $3.1 million held in lender reserve
accounts at December 31, 2002 and 2001, respectively, totaled $5.9 million and
$8.5 million at December 31, 2002 and 2001, respectively. As of November 11,
2002, the Partnership is in default under the mortgage loan agreement due to its
failure to pay the regularly scheduled debt service payment due on that date.
The Partnership is also in default under the Franchise Agreements with Marriott
International due to its failure to make its property improvement fund
contributions beginning in September 2002, also resulting in technical default
under the mortgage loan agreement. The Partnership has requested from the lender
further modifications to the mortgage loan agreement. These modifications
include paying debt service solely from available cash flow, selling certain of
the Partnership's properties and applying the proceeds from the sales toward
replenishing reserves held by the lender. If the lender is unwilling to grant
the requested modifications the Partnership may be required to seek protection
by filing for bankruptcy or the Partnership's properties may be lost through
foreclosure.

The lack of available funds from operations over the past several years has also
delayed room refurbishments at the Inns. Based upon information provided by
Sage, the capital expenditure needs for 2002 and 2003 for the Inns are estimated
to total approximately $19 million. As of March 1, 2003, the Partnership has
spent approximately $4.9 million toward the completion of the property
improvements plans ("PIPs") required under the Franchise Agreements with
Marriott International. As indicated above, the Partnership is required to
provide evidence by no later than November 30, 2003 that at least $23 million
has been set aside to complete a portion of these capital improvements. If the
capital improvements are not completed, the Franchise Agreement could be
terminated and the Inns could be prohibited from operating as "Fairfield Inn by
Marriott". If this were to occur, which is likely, the Partnership would seek to
become part of a comparable, nationally recognized hotel system in order to
continue to comply with the obligations under its loan documents. If the
Partnership is unable to retain another nationally recognized brand, it could
significantly impair its revenues and cash flow. The Partnership estimates that
the shortfall in available funds for capital expenditures will be approximately
$6.2 million by the end of 2003.

For the years ended December 31, 2002, 2001 and 2000, the Partnership
contributed $3.5 million, $5.8 million, $6.0 million, respectively, to the
property improvement fund. In 2001 and 2000 the Partnership deposited an
additional $2.5 million and $2.4 million, respectively to the property
improvement fund to cover the capital expenditure shortfall which began in 1999.
No deposits were made in 2002. The shortfall is primarily due to room
refurbishments, which are planned for a majority of the Partnership's Inns in
the next several years. The Partnership had insufficient cash flow from
operations beginning in September 2002 to make its property improvement fund
contributions. This resulted in a default under the Partnership's Franchise
Agreements with Marriott International, and thus a technical default under the
mortgage loan agreement. If the lender is unwilling to grant the requested
modifications the Partnership may be required to seek protection by filing for
bankruptcy or the Partnership's properties may be lost through foreclosure.

On March 26, 2003, the Partnership received notice from Marriott International
that it was in default under the ground lease agreements, due to its failure to
pay the full amount due of minimum rentals owed under the Ground Leases
beginning in January 2003.

All of the above mentioned factors raise substantial doubt about the
Partnership's ability to continue as a going concern. These financial statements
have been prepared on a going concern basis. In the event of liquidation, the
carrying values as presented in the accompanying financial


                                       37
<PAGE>

statements could be materially different and the accompanying financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

The Partnership records are maintained on the accrual basis of accounting.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Revenue Recognition

Revenue is generally recognized as services are performed.

Property and Equipment

Property and equipment is recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, which is
generally 30 years for building, leasehold and land improvements, and 4 to 10
years for furniture and equipment. All property and equipment is pledged as
security for the mortgage debt.

The Partnership assesses impairment of its real estate properties based on
whether estimated undiscounted future cash flows from such properties will be
less than their net book value. If a property is impaired, its basis is adjusted
to its estimated fair value. In 2002, Inns located in Atlanta, Georgia;
Birmingham, Alabama; Detroit, Michigan; and St. Louis, Missouri also experienced
declining cash flows due to additional competition in their local markets. An
additional impairment charge was also taken in 2002 on the inn located in
Greenville, South Carolina. An impairment charge was also taken on one of the
Inns currently held for sale, located in Orlando, Florida, based on the most
recent sales offer. In 2000 and 2001, the Inns located in Johnson City,
Tennessee; Raleigh and Charlotte, North Carolina; Columbus, Ohio; Greenville,
South Carolina; Atlanta, Georgia experienced declining cash flows, primarily due
to additional competition in their local markets. As a result, during 2002, 2001
and 2000, the Partnership concluded that these Inns were impaired and adjusted
their basis to their estimated fair market value. The Partnership recorded an
impairment charge of $5.3 million, $3.8 million, and $8.1 million in 2002, 2001,
and 2000, respectively.

Deferred Financing Costs

Deferred financing costs represent the costs incurred in connection with the
mortgage debt refinancing and are amortized over the term of the Mortgage Debt.
The Partnership incurred $4.9 million of financing costs in connection with the
Mortgage Debt. The financing costs are being amortized using the straight-line
method, which approximates the effective interest method, over the ten year term
of the Mortgage Debt. The Partnership recognized an additional $89,000 of
amortization expense as a result of certain prepayments that were made to the
principal balance from proceeds of the sale of four of the Partnership's hotels
(see Note 4). At December 31, 2002 and 2001, accumulated amortization of
deferred financing costs totaled $3.0 million and $2.4 million, respectively.

Restricted Cash

The Partnership was required to establish certain reserves pursuant to the terms
of the mortgage debt (see Note 6).


                                       38
<PAGE>

Cash and Cash Equivalents

The Partnership considers all highly liquid investments with a maturity of three
months or less at date of purchase to be cash equivalents.

Inventory

Inventory consists primarily of linen, which is stated at the lower of cost or
market.

Ground Rent

Certain Inns are subject to Ground Leases with Marriott International that
provide for annual minimum rents. The Ground Leases include scheduled increases
in minimum rents per property. These scheduled rent increases, which were
included in minimum lease payments, were recognized by the Partnership on a
straight-line basis over the first ten years of the leases. The adjustment
included in ground rent expense and Due to Marriott International, Inc. and
affiliates to reflect minimum lease payments on a straight-line basis was a
decrease of $12,000 for the year ended December 31, 2000. At year end 2000, all
deferred straight-line ground rent had been recognized. For the remaining life
of the leases, the minimum rentals are adjusted every five years based on
changes in the Consumer Price Index, and are expensed as incurred.

Upon modification of the ground lease with Marriott International effective
November 30, 2001, ground rent of $2.2 million was forgiven and minimum rentals
for 2002 were reduced to $100,000. The excess of ground rent expense recognized
over the 2002 rental payments of $100,000 required by the lease agreement of
$2.5 million is deferred at December 31, 2002. These amounts are being amortized
on a straight line basis over the terms of the ground lease.

Income Taxes

Provision for Federal and state income taxes has not been made in the
accompanying financial statements since the Partnership does not pay income
taxes, but rather, allocates profits and losses to the individual Partners.
Significant differences exist between the net loss for financial reporting
purposes and the net loss as reported in the Partnership's tax return.

Recently Issued Accounting Standards

Financial Accounting Standards Board ("FASB") SFAS No. 144 "Accounting for
Impairment or Disposal of Long-Lived Assets" supersedes SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." The standard provides guidance beyond that previously specified in
Statement 121 to determine when a long-lived asset should be classified as held
for sale, among other things. This Statement was adopted by the Partnership
effective January 1, 2002. Implementation of the statement did not have a
material effect on the Partnership.

SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
SFAS No. 13 and Technical Corrections," updates, clarifies and simplifies
existing accounting pronouncements. In part, this statement rescinds SFAS No. 4,
"Reporting Gains and Losses from Extinguishment of Debt." SFAS No. 145 will be
effective for fiscal years beginning after May 15, 2002. Upon adoption,
enterprises must reclassify prior period items that do not meet the
extraordinary item classification criteria in APB Opinion No. 30. The
Partnership does not expect that this statement will have a material effect on
its financial statements.

SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. Examples of costs covered by the standard include lease
termination costs and certain employee severance costs that are associated with
a restructuring, discontinued operation, plant closing or other exit or disposal
activity. SFAS No. 146 is effective prospectively for exit and disposal
activities initiated after December 31, 2002, with earlier adoption encouraged.
The Partnership does not expect that this statement will have a material effect
on its financial statements.


                                       39
<PAGE>

FASB Interpretation No. 45, "Guarantors' Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others"
elaborates on the disclosures to be made by a guarantor in its financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. This Interpretation does not prescribe a specific
approach for subsequently measuring the guarantor's recognized liability over
the term of the related guarantee. The disclosure provisions of this
Interpretation are effective for the Partnership's December 31, 2002 financial
statements. The initial recognition and initial measurement provisions of this
Interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. This Interpretation had no effect on the
Partnership's financial statements.

FASB Interpretation No. 46, "Consolidation of Variable Interest Entities"
clarifies the application of existing accounting pronouncements to certain
entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. The provisions of the Interpretation will be
immediately effective for all variable interests in variable interest entities
created after January 31, 2003, and the Partnership will need to apply its
provisions to any existing variable interests in variable interest entities by
no later than December 31, 2004. The Partnership does not expect that this will
have an impact on its financial statements.

NOTE 3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following as of December 31 (in
thousands):

<TABLE>
<CAPTION>
                                                                   2002             2001
                                                              ---------        ---------
<S>                                                         <C>              <C>
         Land and improvements                                $  13,425        $  13,425
         Building and leasehold improvements                    154,198          157,931
         Furniture and equipment                                 66,466           66,192
         Construction in progress                                 3,002              491
                                                              ---------        ---------
                                                                237,091          238,039

         Less accumulated depreciation and amortization        (137,465)        (128,000)
                                                              ---------        ---------

                                                              $  99,626        $ 110,039
                                                              =========        =========
</TABLE>

In December 2001, the Partnership committed to a plan with the approval of its
mortgage lender to place eight Inns on the market for potential sale. The eight
Inns are located in Montgomery, Alabama; Orlando, Florida; Atlanta, Georgia;
Chicago, Illinois; Charlotte, North Carolina; Raleigh, North Carolina; and
Columbus, Ohio. Each of these Inns is carried at the lower of cost or fair value
less cost to sell and have been classified as held for sale on the accompanying
balance sheet. No depreciation expense has been taken on these Inns since they
were classified as held for sale. During 2002, the Partnership sold four of the
Inns, located in Montgomery, Alabama; Atlanta, Georgia; Chicago, Illinois; and
Charlotte, North Carolina.

The Partnership's mortgage debt permits sales of Inns only if U.S. government
securities in specified amounts are substituted as collateral for the benefit of
the mortgage lender. The Partnership's loan agreement was amended to waive this
provision in order to allow proceeds, if any, from the sale of certain inns to
be applied to reduce the outstanding balance on the mortgage loans, which will
reduce debt service commensurately. However, the proceeds of sales may not be
sufficient to satisfy required prepayment minimums. There can be no assurance
that any of the remaining Inns held for sale will ultimately be sold. These
properties have been marketed with the consent of the Partnership's lender.
However, the consent may not be valid if an event of default exists. As
described above, the Partnership is in default and as such, lender's consent to
a sale may be withheld.

The net book value of the four Inns remaining at December 31, 2002 of $1.1
million and the eight Inns at December 31, 2001 of $5.7 million has been
classified as "Properties Held for Sale" in the accompanying balance sheet.
However, in the first quarter of 2003, the Partnership reclassified these Inns
from properties held for sale and began depreciating their net book values,
after the Partnership determined to no longer market these Inns for sale.


                                       40
<PAGE>

NOTE 4. SALE OF INNS

On July 29, 2002, the Partnership sold one of its Inns located in Montgomery,
Alabama (classified as property held for sale on the accompanying balance sheet)
for $3.1 million. The net proceeds from the sale of approximately $2.9 million
were applied toward the Partnership's mortgage debt, in accordance with the
terms of the loan agreement. The Partnership recognized a gain on the sale of
approximately $2.1 million.

On August 12, 2002, the Partnership sold its Inn located in Charlotte, North
Carolina (classified as property held for sale on the accompanying balance
sheet) for $2.5 million. The net proceeds from the sale of approximately
$300,000, which is net of approximately $1.9 million attributed to the ground
lease buyout, were applied toward the Partnership's mortgage debt, in accordance
with the terms of the loan agreement. The Partnership recognized a gain on the
sale of approximately $200,000.

On August 14, 2002, the Partnership sold its Inn located in Atlanta, Georgia
(classified as property held for sale on the accompanying balance sheet) for
$3.0 million. The net proceeds from the sale of approximately $2.8 million were
applied toward the Partnership's mortgage debt, in accordance with the terms of
the loan agreement. The Partnership recognized a gain on the sale of
approximately $200,000.

On October 9, 2002, the Partnership sold its Inn located in Chicago, Illinois
(classified as property held for sale on the accompanying balance sheet) for
$2.3 million. The net proceeds from the sale of approximately $1.4 million,
which is net of approximately $700,000 attributed to the ground lease buyout,
were applied toward the Partnership's mortgage debt, in accordance with the
terms of the loan agreement. The Partnership recognized a gain on the sale of
approximately $1.1 million.

NOTE 5. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

The Partnership is currently in default under its mortgage loan agreement.
Therefore, the fair value of the Partnership's mortgage debt cannot be
reasonably estimated due to uncertainties related to ongoing operations. The
fair value of the Partnership's cash and cash equivalents, restricted cash,
property improvement fund, accounts receivable, and accounts payable equals
carrying value as presented in the accompanying balance sheets.

NOTE 6. DEBT

Mortgage Debt In Default

As of November 11, 2002, the Partnership is in default under the mortgage loan
agreement due to its failure to pay the regularly scheduled debt service payment
due on that date. In 1997, the Partnership's mortgage debt was refinanced and
increased to $165.4 million. The mortgage debt is non-recourse, bears interest
at a fixed rate of 8.40% and requires monthly payments of $1.4 million of
principal and interest based upon a 20-year amortization schedule for a 10-year
term expiring January 11, 2007. Thereafter, until the final maturity date of
January 11, 2017, interest is payable at an adjusted rate, and all excess cash
flow is applied toward principal amortization. The lender securitized the loan
through the issuance and sale of commercial mortgage backed securities.

The Partnership is also in default under the Franchise Agreements with Marriott
International due to its failure to make its property improvement fund
contributions beginning in September 2002, also resulting in technical default
under the mortgage loan agreement. The Partnership has requested from the lender
further modifications to the mortgage loan agreement. These modifications
included paying debt service solely from available cash flow, selling certain of
the Partnership's Inns and applying the proceeds from the sales toward
replenishing reserves held by the lender. If the lender is unwilling to grant
the requested modifications the Partnership may be required to seek protection
by filing for bankruptcy or the Partnership's properties may be lost through
foreclosure.

The mortgage premium of $3.5 million is being amortized based on a 20-year
amortization schedule for a 10-year term, subject to adjustments for Inn sales,
expiring January 11, 2007. Accumulated amortization of the mortgage premium at


                                       41
<PAGE>

December 31, 2002 and 2001 was $2.1 million and $1.7 million, respectively,
resulting in an unamortized balance of $1.4 million and $1.8 million,
respectively.

The mortgage debt is secured by first mortgages on all of the Inns, the land on
which they are located, or an assignment of the Partnership's interest under the
Ground Leases, including ownership interest in all improvements thereon,
fixtures and personal property related thereto.

Reserves

The Partnership was required by the lender to establish various reserves for
capital expenditures, working capital, debt service and insurance needs.

The balances in those reserves as of December 31 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                               2002         2001
                                                             ------       ------
<S>                                                     <C>           <C>
         Debt service reserve                                 $ --       $1,792
         Working capital reserve                                --          677
         Taxes and insurance reserve                            --          532
         Ground rent reserve                                     8          126
                                                              ----       ------

         Total restricted cash                                $  8       $3,127
                                                              ====       ======
</TABLE>

The Partnership is required to deposit two months' debt service payments, or
$2.9 million, into a debt service reserve. The Partnership was also required to
establish a ground rent reserve, which is adjusted annually to equal one month's
anticipated ground rent. The Partnership's loan agreement requires that if a
single downgrade of Marriott International's debt occurs, the Partnership is
required to contribute an additional month's debt service payment to the debt
service reserve which was under funded in 2002 and 2001 by $2.9 million and $2.5
million, respectively. In addition, pursuant to the terms of the mortgage debt
subsequent to a downgrade of Marriott International's debt, the Partnership is
required to establish with the lender a separate escrow account for payments of
insurance premiums and real estate taxes (the "Tax and Insurance Escrow
Reserve") for each mortgaged property. During 1998, Orange County in Florida
(the "County") paid the Partnership $197,000 for a portion of the land in front
of the Orlando South Fairfield Inn in Orlando, Florida. The funds were placed in
an escrow account and shown as the condemnation reserve. During 2001, the County
made its final resolution on the value of the land. The Partnership received an
additional $150,000, which was initially placed into the condemnation reserve.
The entire balance of the condemnation reserve account was then transferred into
the debt reserve account in accordance with the terms of the Amended Loan
Agreement.

In addition, the Partnership entered into a Working Capital Maintenance and
Supplemental Debt Service Agreement ("Working Capital Agreement") with the
Former Manager, effective January 13, 1997. As part of the Working Capital
Agreement, the Partnership agreed to furnish the Former Manager additional
working capital to be deposited into a segregated interest bearing account (the
"Working Capital Reserve"). The Working Capital Reserve was to be funded from
Operating Profit, as defined, retained by or distributed to the Partnership as
such amounts became available, until the Working Capital Reserve reached
$670,000. The Working Capital Agreement also required the funding of another
segregated account for debt service shortfalls (the "Supplemental Debt Service
Reserve"). This reserve was also to be funded out of Operating Profit, as
defined, retained or distributed to the Partnership as such amounts became
available, until the Supplemental Debt Service Reserve reached $1.4 million.
Interest earned on these reserve accounts was transferred to the Partnership
during first quarter 2001. The balance of the supplemental Debt Service Reserve
was used to fund debt service during 2001. The Working Capital Agreement was
terminated effective November 30, 2001, along with the termination of the
Management Agreement with Fairfield FMC Corporation.

NOTE 7. GROUND LEASES

The land on which 30 of the Inns are located is leased from Marriott
International or its affiliates. The Ground Leases, prior to the amendment
discussed below, expired on November 30, 2088 and provide that, other than in
2002, the Partnership will pay annual rents equal to the greater of a specified
minimum rent for each property or a percentage rent


                                       42
<PAGE>

based on gross revenues of the Inn operated thereon. The minimum rentals are
adjusted at various anniversary dates through 2000, as defined in the
agreements. The minimum rentals are adjusted every five years for the remaining
life of the leases based on changes in the Consumer Price Index. The percentage
rent, which also varies from property to property, is fixed at predetermined
percentages of gross revenues that increase over time.

On November 30, 2001, the Partnership executed a ground lease amendment, which
cancels the Partnership's obligation to pay unpaid deferred ground rent for 2000
and 2001 in the amount of $2.2 million, reduces the minimum ground rent from
$2.7 million to $100,000 for 2002, and extends the term of the lease to November
30, 2098. The forgiveness of deferred ground rent and reduction of 2002 minimum
rentals due to the lease modification are being amortized on a straight-line
basis over the amended ground lease terms. If by November 30, 2003 the
Partnership (i) receives a capital infusion (either by way of loan or otherwise)
of not less than $23 million in order to fund the completion of the PIPs, (ii)
is diligently pursuing completion of the PIPs, and (iii) satisfies certain other
conditions, the ground rent will be reduced through 2004 and the Partnership
will have an option to acquire the fee interest in the land for a price equal to
$45.8 million. If the Partnership does not meet these conditions, it will be a
default under the Franchise Agreements, which would also constitute a default
under the Ground Leases. Accordingly, if the Partnership does not meet these
conditions, not only could it lose the right to operate its Inns as a "Fairfield
Inn by Marriott", but the 30 Inns subject to a Ground Lease could be lost to the
ground lessor.

Minimum future rental payments during the term of the Ground Leases as of
December 31, 2002 are as follows (in thousands):

<TABLE>
<CAPTION>
           Lease Year                                 Minimum Rental
           ----------                                 --------------
<S>                                                  <C>
           2003....................................   $   2,657
           2004....................................       2,657
           2005....................................       2,657
           2006....................................       2,657
           2007....................................       2,657
           Thereafter..............................     241,566
                                                        -------
                                                       $254,851
                                                       ========
</TABLE>

Total rental expense on the Ground Leases was $2.6 million, $2.7 million, and
$3.0 million for 2002, 2001 and 2000, respectively.

In connection with the refinancing, beginning in 1997 until the Mortgage Debt is
repaid, the payment of rental expense exceeding 3% of gross revenues from the 30
leased Inns in the aggregate shall be deferred in any fiscal year that cash flow
is less than the regularly scheduled principal and interest payments on the
Mortgage Debt. The deferral shall then be payable in the following year if cash
flow is sufficient to pay the regularly scheduled principal and interest
payments for the Mortgage Debt. Deferred ground rent payable to Marriott
International and its affiliates at December 31, 2002 and 2001 was $4.7 million
and $2.2 million, respectively, and is included in Due to Marriott
International, Inc. and affiliates on the accompanying balance sheet. The amount
of deferred ground rent waived as a result of the ground lease amendment of $2.2
million is recognized as a reduction in ground rent expense over the remaining
life of the new lease term, since it represents a new operating lease as of
November 30, 2001, for accounting purposes. Ground rent expense is recognized on
a straight-line basis over the term of the lease. The excess of ground rent
expense recognized over rental payments required by the lease agreement of $2.5
million is deferred at December 31, 2002 and is also being recognized on a
straight-line basis over the term of the lease.

Under the leases, the Partnership pays all costs, expenses, taxes and
assessments relating to the Inns and the underlying land, including real estate
taxes. Each Ground Lease provides that the Partnership has a first right of
refusal in the event the applicable ground lessor decides to sell the leased
premises. Upon expiration or termination of a Ground Lease, title to the
applicable Inn and all improvements reverts to the ground lessor.

On March 26, 2003, the Partnership received notice from Marriott International
that it was in default under the ground lease agreements, due to its failure to
pay the full amount due of minimum rentals owed under the Ground Leases
beginning in January 2003.


                                       43
<PAGE>

NOTE 8. FORMER MANAGEMENT AGREEMENT

Through November 30, 2001, the Partnership was a party to a long-term management
agreement (the "Management Agreement") with the Former Manager. This agreement
was terminated and Sage Management Resources III, LLC ("Sage"), an affiliate of
Sage Hospitality Resources, LLC, was retained as the New Manager effective
November 30, 2001. See discussion of new management agreement below.

In conjunction with the 1997 mortgage refinancing, the initial term of the
Management Agreement was extended ten years to December 31, 2019. The Former
Manager had the option to renew the Management Agreement as to one or more of
the Inns at its option, for up to four additional 10-year terms plus one
five-year term. The Former Manager was paid a base management fee equal to 2% of
gross Inn revenues and a Fairfield Inn system fee equal to 3% of gross Inn
revenues. In addition, the Former Manager was entitled to an incentive
management fee equal to 15% of Operating Profit as defined, increasing to 20%
after the Inns had achieved total Operating Profit during any 12 month period
equal to or greater than $33.9 million. As of December 31, 2001, operating
profit did not exceed $33.9 million. The incentive management fee with respect
to each Inn was payable out of 50% of cash flow from operations remaining after
payment of ground rent, debt service, Partnership administrative expenses and
the owner's priority return, as defined.

In accordance with the Management Agreement, incentive management fees earned
through 1992 were waived by the Former Manager. Incentive management fees earned
after 1992 accrued and were payable as outlined above or from Capital Receipts.
Due to the litigation settlement agreement (see Note 13), $23.5 million of
deferred incentive management fees were waived by the Former Manager in 2000. As
a result, the Partnership recognized an extraordinary gain for this amount in
2000. During 2001 and 2000, the Former Manager deferred $2.0 million and $2.8
million of incentive management fees, respectively. In connection with the
termination of the Management Agreement with Fairfield FMC Corporation, $2.0
million and $2.8 million of incentive fees earned in 2001 and 2000,
respectively, were no longer due under the terms of the Management Agreement.
Deferred incentive fees of $2.8 million related to 2000, net of a $500,000
payment to the Former Manager, have been reflected in the 2001 statement of
operations in the line titled Termination of Management Agreement. Incentive
fees for 2001 were not recognized in the 2001 statement of operations due to the
termination of the Management Agreement with Fairfield FMC Corporation.

The Former Manager was required to furnish certain services ("Chain Services")
which are furnished generally on a central or regional basis to all managed or
owned Inns in the Fairfield Inn by Marriott hotel system. Costs and expenses
incurred in providing such services were allocated among all domestic Fairfield
Inn by Marriott hotels managed, owned or leased by Marriott International or its
subsidiaries, based upon one or a combination of the following: (i) percent of
revenues, (ii) total number of hotel rooms, (iii) total number of reservations
booked, and (iv) total number of management employees. The Inns also
participated in Marriott International's Marriott Rewards Program ("MRP"). The
cost of this program was charged to all hotels in the full-service, Residence
Inn by Marriott, Courtyard by Marriott and Fairfield Inn by Marriott systems
based upon the MRP revenues at each hotel. The total amount of chain services
and MRP costs allocated to the Partnership for the years ended December 31,
2002, 2001 and 2000 was $5.0 million, $1.7 million, and $1.7 million,
respectively. In addition, Marriott International maintains a marketing fund to
pay the costs associated with certain system-wide advertising, marketing, sales,
promotional and public relations materials and programs. Each Inn within the
system contributes approximately 2.5% (for 2002) and 2.4% (for 2001 and prior)
of gross Inn revenues to the marketing fund. For the years ended December 31,
2002, 2001 and 2000, the Partnership contributed $1.9 million, $1.9 million, and
$2.5 million, respectively, to the marketing fund.

Pursuant to the terms of the Management Agreement, the Partnership was required
to provide the Former Manager with working capital and supplies to meet the
operating needs of the Inns. The Former Manager converted cash advanced by the
Partnership into other forms of working capital consisting primarily of
operating cash, inventories, and trade receivables and payables which were
maintained and controlled by the Former Manager. This advance earned no interest
and remained the property of the Partnership throughout the term of the
Management Agreement. The Partnership was required to advance upon request of
the Former Manager any additional funds necessary to satisfy the needs of the
Inns as their operations required from time to time. Upon termination of the
Management Agreement, the Former Manager returned to the Partnership all unused
working capital and supplies. At the inception of the Partnership, $1 million
was advanced to the Former Manager for working capital and supplies which was
included in Due from Marriott


                                       44
<PAGE>

International, Inc. and affiliates in the accompanying balance sheet. Effective
with the termination of the Management Agreement, the working capital was turned
over to the new manager and represents inventory.

The Management Agreement provided for the establishment of a property
improvement fund for the Inns to cover (a) the cost of certain non-routine
repairs and maintenance to the Inns, which are normally capitalized; and (b) the
cost of replacements and renewals to the Inns' property and improvements.
Contributions to the property improvement fund were based on a percentage of
gross revenues of each Inn equal to 7%. During 2000, $416,000 of these
contributions were reallocated to pay for debt service. For the years ended
December 31, 2002, 2001 and 2000, the Partnership contributed $3.5 million, $5.8
million, and $6.0 million, respectively, to the property improvement fund.
However, if the Former Manager determined 7% exceeded the amount needed for
making capital expenditures, then the Former Manager could adjust the incentive
management fee calculation to exclude as a deduction in calculating incentive
management fees up to one percentage point of contributions to the property
improvement fund. No adjustment was necessary for 2001 and 2000.

NOTE 9. NEW MANAGEMENT AGREEMENT

Effective November 30, 2001, the Partnership retained Sage, an independent hotel
management company, to manage its Inns under separate management agreements for
each Inn.

The management agreements have a term of five years and provide that the Inns
will be operated as part of the Fairfield Inn by Marriott franchise system and
that Sage will be responsible for the day-to-day operation of the Inns. The
Partnership has the right to terminate a management agreement under certain
circumstances, including a change in control of Sage, the sale of all the Inns
(in which event a termination fee may be payable) or Sage's failure to achieve
certain performance levels during the third year of the agreement, unless such
failure is due to circumstances beyond Sage's control. Sage may terminate a
management agreement under certain circumstances, including the Partnership's
failure to provide sufficient working capital for the operation of an Inn.

Sage receives a base management fee under the management agreements in the
aggregate equal to 3% of adjusted gross revenue, and an incentive management fee
equal to 10% of the excess of earnings before interest, taxes, depreciation and
amortization of all the Inns during the applicable fiscal year ("EBITDA") over
(i) $25 million, to be adjusted if an Inn is no longer managed by Sage (during
the first three years of the management agreements) and (ii) 107.5% of the
greater of (x) $25,000,000 and (y) the prior year's EBITDA (during the last two
years of the management agreements). The right to continue to manage and operate
the Inns shall be subordinate to the mortgage. The incentive management fee
shall be subordinate in payment to the mortgage debt. The total fees and
expenses payable by the Partnership under the new franchise agreements and the
new management agreements, exclusive of the incentive management fee payable to
Sage, will not exceed the amount that was paid to the Former Manager under the
previous management agreement.

During 2001, the Partnership advanced to Sage amounts totaling $868,000 in order
to fund expenses incurred related to Sage's transition as the new manager. The
Partnership and Sage entered into a Promissory Note Agreement ("Note") whereby
these advances would be repaid by Sage on a monthly basis beginning February 1,
2002 in an amount equal to 50% of the previous months management fees until the
Note is paid in full. The advances accrued interest at a rate of 12%. Interest
income on these advances was $49,000 and $23,000 for the years ending December
31, 2002 and 2001, respectively. This Note was paid in full during the year
ended December 31, 2002.

The Partnership is required to establish a reserve account to cover expenditures
for capital improvements and replacement of furniture, fixtures and equipment
for the Inns. Contributions to the account will be made on a monthly basis in an
amount equal to 7% of gross monthly revenues for the Inns. If funds are
insufficient to meet required monthly contributions to the reserve account, the
Partnership is required to provide additional funds.

The Partnership is also required to provide Sage with working capital sufficient
to meet all disbursements and operating expenses necessary to permit the
uninterrupted and efficient operation of the Inns. Sage may request additional
contributions to working capital if any additional funds are necessary to
satisfy the needs of the Inns as their operations may require from time to time.


                                       45
<PAGE>

If the Partnership's earnings before interest, taxes, depreciation, and
amortization is not at least $25 million for the calendar year 2004 (subject to
certain exceptions), the Partnership has the right to terminate Sage.

The Partnership has historically presented the working capital advanced to the
Former Manager in a single line item on the balance sheet. In 2001, the
Partnership presented the working capital advanced to Sage in a single line item
on the balance sheet to be consistent with prior year presentation.

In 2002, the Partnership concluded that the components of the working capital
managed by Sage should be consolidated with the working capital of the
Partnership. Previously reported financial statements have been revised to
reflect this accounting presentation.

This revision did not impact the statement of operations, partners' deficit or
the net operating, investing and financing cash flows, but did affect the
comparability of the components of the operating cash flows for 2002 to 2001 and
2000.

Following is a summary of the working capital components affected by the
revision at December 31, 2001 (in thousands):

<TABLE>
<CAPTION>
                                    Balance Sheet
                                    as previously                  Balance Sheet
                                      reported      Adjustments      Revised
                                    -------------   -----------    -------------
<S>                                <C>             <C>              <C>
Accounts receivable                    $    --        $   598        $    598
Due from Manager                         1,069            400           1,469
Cash                                     1,597          3,794           5,391
Due from Marriott International,
  Inc.                                      --            387             387
Prepaid insurance and other
  current assets                            --          1,576           1,576
Accounts payable                        (3,660)        (6,755)        (10,415)
                                       -------        -------        --------
                                       $  (994)       $    --        $   (994)
                                       =======        =======        ========
</TABLE>

NOTE 10.  FRANCHISE AGREEMENTS

Effective November 30, 2001, the Partnership entered into Franchise Agreements
with Marriott International for each Inn, which permitted the Partnership to
continue to use the Fairfield Inn by Marriott brand.

Under the new Franchise Agreements, the Partnership will pay the following fees
for each Inn:

     o    a $10,000 non-refundable application fee per inn to cover Marriott
          International's application processing expenses;

     o    a royalty fee of 4% of gross room revenue;

     o    a marketing fund contribution of 2.5% of gross room revenue;

     o    a reservation system fee equal to 1% of gross room revenue, plus $3.50
          for each reservation confirmed and a communications support fee of
          $379 per month for each inn;

     o    a property management system fee of $323 per month for each inn plus
          an additional $30 per month for each inn to access the Marriott
          intranet site; and

     o    training and software charges.

In addition, the Partnership is required to deposit 7% of each Inn's gross
monthly revenues into an escrow account to be applied towards capital
improvements. The Partnership is currently in default under the franchise
agreements with MII


                                       46
<PAGE>

due to its failure to make its property improvement fund contributions beginning
in September 2002, also resulting in technical default under the mortgage loan
agreement.

Each new franchise agreement includes a termination fee to Marriott
International if the franchise for a particular Inn is terminated. To facilitate
a potential sale, the Partnership will not be required to pay the termination
fee on five of eight specified inns if the Inns are sold within 18 months of the
date of the franchise agreements. Each franchise agreement has a 10-year term.
The Partnership has the option to renew each agreement for two additional
five-year periods subject to its successful maintenance of brand standards and
compliance with all of the material terms of the agreement.

Marriott International may terminate the franchise agreements under certain
circumstances, including the Partnership's failure to operate an inn under the
Fairfield Inn by Marriott brand, certain transfers of an interest in the
Partnership and the Partnership's failure to complete required upgrading and
remodeling of the Inns.

As noted above, the Partnership is currently in default under the franchise
agreements. If the Property Improvement Plans required by Marriott International
are not completed by November 30, 2003, which is likely, it will also be
considered an event of default under the franchise agreements.

As a condition to entering into the franchise agreements, an affiliate of the
Partnership's general partner has guaranteed the Partnership's obligations to
pay the termination fees under certain circumstances that may come due under the
agreements up to a maximum of $25 million, and up to a maximum of $10 million on
the Partnership's other obligations under the agreements.

NOTE 11.  TAXABLE LOSS

The Partnership's taxable loss differs from the net income (loss) for financial
reporting purposes for the years ended December 31, 2002, 2001 and 2000, as
follows (in thousands):

<TABLE>
<CAPTION>
                                                            2002            2001            2000
                                                         -------        --------        --------
<S>                                                     <C>            <C>             <C>
Net (loss) income for financial reporting purposes       $(8,548)       $(11,472)       $  8,709
         Gain from property and equipment sales           (6,226)             --              19
         Depreciation                                          3           1,266           2,866
         Impairment charges                                5,278           3,808           8,127
         Incentive fees                                       --          (2,849)        (20,634)
         Ground rent                                       2,532              --            (275)
         Difference in capitalized items                     342           1,058             (80)
         Other                                               (29)            151             (18)
                                                         -------        --------        --------
Taxable loss                                             $(6,648)       $ (8,038)       $ (1,286)
                                                         =======        ========        ========
</TABLE>

NOTE 12. RELATED PARTY TRANSACTIONS

The Partnership pays Winthrop Financial Associates, an affiliate of the general
partner, a monthly fee of $30,000 to cover various administrative services
provided on the Partnership's behalf. For the years ended December 31, 2002 and
2001, $360,000 and $120,000 were expensed for these services, respectively.


                                       47
<PAGE>

NOTE 13. LITIGATION

In March 2000, Marriott International, Inc., Host Marriott, various of their
subsidiaries, J.W. Marriott, Jr., Stephen Rushmore, and Hospitality Valuation
Services, Inc. (collectively, the "Defendants") entered into a settlement
agreement with counsel for the plaintiffs to resolve litigation in seven
partnerships, including the Partnership. Under the terms of the settlement, the
Defendants paid $18.8 million in cash in exchange for dismissal of the
litigation and a complete release of all claims in October 2000. Each limited
partner received $152 per Unit. In addition to the Defendants' cash payments,
Fairfield FMC Corporation forgave $23.5 million of deferred management fees.


                                       48
<PAGE>

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         Effective May 17, 2002, the Partnership dismissed Arthur Andersen LLP
("Arthur Andersen") as its independent auditors. Arthur Andersen's report on the
Partnership's financial statements for the year ended December 31, 2001
contained a modification raising substantial doubt about the Partnership's
ability to continue as a going concern due to recurring operating losses, a net
capital deficiency, and doubt about the Partnership's ability to meet its 2002
debt obligations. Arthur Andersen's report on the Partnership's financial
statements for the year ended December 31, 2000 did not contain an adverse
opinion or disclaimer of opinion, nor was such report qualified or modified as
to uncertainty, audit scope or accounting principles.

         For the years ended December 31, 2001 and 2000, there were: (i) no
disagreements with Arthur Andersen on any matter of accounting principle or
practice, financial statement disclosure, or auditing scope or procedure which
disagreements if not resolved to Arthur Andersen's satisfaction, would have
caused them to make reference to the subject matter in connection with their
report on our financial statements for such years; and (ii) there were no
reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.

         Effective September 13, 2002, the Partnership engaged Ernst & Young,
LLP ("Ernst & Young") as its independent auditors. For the year ended December
31, 2002, there are (i) no disagreements with Ernst & Young on any matter of
accounting principle or practice, financial statement disclosure, or auditing
scope or procedure which disagreements if not resolved to Ernst & Young's
satisfaction, would have caused them to make reference to the subject matter in
connection with their report on our financial statements for such year; and (ii)
there were no reportable events as defined in Item 304(a)(1)(v) of Regulation
S-K.


                                       49
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP

         The Partnership has no directors or executive officers. The general
partner of the Partnership is AP-Fairfield GP LLC, a Delaware limited liability
company. The general partner manages and controls substantially all of the
Partnership's affairs and has general responsibility and ultimate authority in
all matters affecting its business. As of March 1, 2003, the names of the
executive officers of manager of the general partner and the position held by
each of them, are as follows:

<TABLE>
<CAPTION>
                             Position Held with the             Has Served as a Director
Name                            General Partner                     or Officer Since
----                            ---------------                     ----------------
<S>                   <C>                                       <C>
Michael L. Ashner      Chief Executive Officer and Director               8-01

Thomas C. Staples      Chief Financial Officer                            8-01

Peter Braverman        Executive Vice President                           8-01

Carolyn Tiffany        Chief Operating Officer                            8-01
</TABLE>

         Michael L. Ashner, age 50, has been the Chief Executive Officer of
Winthrop Financial Associates, A Limited Partnership ("WFA") and the Managing
General Partner since January 15, 1996. Since August 19, 2002, Mr. Ashner has
also served as the Chief Executive Officer of Fairfield Inn By Marriott Limited
Partnership, Shelbourne Properties II Inc. and Shelbourne Properties III Inc.
(collectively, the "Shelbourne REITs"), three publicly traded real estate
investment trusts. Mr. Ashner currently serves as a director of each of the
Shelbourne REITs, Great Bay Hotel and Casino Inc., and NBTY, Inc.

         Thomas C. Staples, age 47, has been the Chief Financial Officer of WFA
since January 1, 1999. From March 1996 through December 1998, Mr. Staples was
Vice President/Corporate Controller of WFA.

         Peter Braverman, age 51, has been a Vice President of WFA and the
Managing General Partner since January 1996. Since August 19, 2002, Mr.
Braverman has also served as the Executive Vice President of each of the
Shelbourne REITs. Mr. Braverman serves as a director of the Shelbourne REITs.

         Carolyn Tiffany, age 36, has been employed with WFA since January 1993.
Since December 1997, Ms. Tiffany has served as the Chief Operating Officer of
WFA. In addition, since August 19, 2002, Ms. Tiffany has served as the Chief
Financial Officer of each of the Shelbourne REITs.

         One or more of the above persons are also directors or officers of a
general partner (or general partner of a general partner) of a number of limited
partnerships which either have a class of securities registered pursuant to
Section 12(g) of the Securities and Exchange Act of 1934, or are subject to the
reporting requirements of Section 15(d) of such Act. In addition, each of the
foregoing officers and directors hold similar positions with Newkirk MLP Corp.,
GFB-AS Manager Corp. and AP-PCC III, L.P., entities that through one or more
subsidiaries manage over 200 limited partnerships that hold title to real
property including, commercial properties, residential properties and assisted
living facilities.

         Except as indicated above, neither the Partnership nor the general
partner has any significant employees within the meaning of Item 401(c) of
Regulation S-K. There are no family relationships among the officers and
directors of the general partner.

         Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Partnership under Rule 16a-3(e) during the Partnership's most
recent fiscal year and Forms 5 and amendments thereto furnished to the
Partnership with respect to its most recent fiscal year, the Partnership is not
aware of any director, officer, beneficial owner of more than ten percent of the
units of limited partnership interest in the Registrant that failed to file on a
timely


                                       50
<PAGE>

basis, as disclosed in the above Forms, reports required by section 16(a) of the
Exchange Act during the most recent fiscal year or prior fiscal years.

ITEM 11. EXECUTIVE COMPENSATION

         The Partnership is not required to and did not pay remuneration to the
officers and directors of its general partner. Certain officers and directors of
the general partner receive compensation from the general partner and/or its
affiliates (but not from the Partnership) for services performed for various
affiliated entities, which may include services performed for the Partnership;
however, the general partner believes that any compensation attributable to
services performed for the Partnership are immaterial. See also "Item 13.
Certain Relationships and Related Transactions."


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         (a)  Security Ownership of Certain Beneficial Owners.

         Except as set forth below, no person or group is known by the
Partnership to be the beneficial owner of more than 5% of the outstanding Units
at March 1, 2003:

<TABLE>
<CAPTION>
          Name of Beneficial Owner     Number of Units owned     % of Class
          ------------------------     ---------------------     ----------
<S>                                   <C>                       <C>
          AP-Fairfield LP, LLC(1)            18,459                22.15%
</TABLE>

(1)      The principal business address of the listed entity, which is an
         affiliate of the general partner, is 7 Bulfinch Place, Suite 500,
         Boston, Massachusetts 02114.

         (b)  Security Ownership of Management.

         At March 1, 2003, AP-Fairfield LP, LLC, an affiliate of the general
partner, owned 18,459 Units representing approximately 22.15% of the total
number of Units outstanding. Neither the general partner, nor any officer,
director, manager or member thereof, or any of their affiliates owned any Units.

         (c)  Changes in Control.

         There exists no arrangement known to the Partnership the operation of
which may at a subsequent date result in a change in control of the Partnership.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Partnership pays Winthrop Financial Associates, an affiliate of the
general partner, a monthly fee of $30,000 to cover various administrative
services provided on the Partnership's behalf. For the year ended December 31,
2002, $360,000 was expensed for these services.

ITEM 14.   CONTROLS AND PROCEDURES

         The general partner's principal executive officer and principal
financial officer have, within 90 days of the filing date of this annual report,
evaluated the effectiveness of the Partnership's disclosure controls and
procedures (as defined in Exchange Act Rules 13a - 14(c) and have determined
that such disclosure controls and procedures are adequate. There have been no
significant changes in the Partnership's internal controls or in other factors
that could significantly affect such internal controls since the date of
evaluation. Accordingly, no corrective actions have been taken with regard to
significant deficiencies or material weaknesses.


                                       51
<PAGE>

                                     PART IV


ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) (1)  Financial Statements: see Index to Financial Statements in Item 8.

(a) (2)  Financial Statement Schedule:

         Schedule III - Real Estate and Accumulated Depreciation

         All other schedules for which provision is made in the applicable
         accounting regulation of the Securities and Exchange Commission are not
         required under the related instructions or are inapplicable and
         therefore have been omitted.

(a) (3)  Exhibits:

         See Exhibit Index

(b)      Reports on Form 8-K:

         The Partnership filed the following reports on Form 8-K during the last
quarter of the fiscal year:

         No Current Reports on Form 8-K were filed by the Partnership during the
three month period ended December 31, 2002.


                                       52

<PAGE>

                                                                    SCHEDULE III
                  Fairfield Inn by Marriott Limited Partnership
                    Real Estate and Accumulated Depreciation
                             As of December 31, 2002
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                 Cost capitalized
                                                                  subsequent to      Gross amount at which carried
                                    Initial costs to Partnership   acquisition            at close of period
                                    ---------------------------------------------------------------------------------
                                                                                              Leasehold,
                                                  Buildings and                              Buildings and             Accumulated
Description             Encumbrances    Land      improvements     Improvements      Land    improvements     Total    depreciation
-----------------------------------------------------------------------------------------------------------------------------------
<S>                    <C>           <C>         <C>                <C>          <C>         <C>           <C>        <C>
46 Fairfield Inns (d)     $137,070    $ 13,425     $ 147,217         $ 13,225     $ 13,425    $ 160,442     $ 173,867   $ 83,021
</TABLE>

<TABLE>
<CAPTION>
                                                              Life on which
                                                               depreciation
                              Date of          Date          in latest income
                           construction      acquired     statements is computed
                           -----------------------------------------------------
<S>                       <C>             <C>           <C>
46 Fairfield Inns            1987-1990       1989-1990           20-30 years
</TABLE>

Notes:

<TABLE>
<CAPTION>
(a)  Reconciliation of real estate:

                                                         2000             2001            2002
                                                      -------------------------------------------
<S>                                                  <C>              <C>              <C>
     Balance at beginning of period                   $ 188,578        $ 184,327        $ 187,534
     Additions during period:
          Improvements                                    3,876            7,015            1,345
     Deductions during period:
          Impairment loss                                (8,127)          (3,808)          (5,278)
          Properties sold                                    --           (9,734)              --
                                                      -------------------------------------------
     Balance at end of period                         $ 184,327        $ 187,534        $ 173,867
                                                      ===========================================

(b)  Reconciliation of accumulated depreciation

     Balance at beginning of period                   $  64,740        $  73,375        $  82,040
     Additions during period:
          Depreciation                                    8,635            8,665        $   7,021
     Deductions during period:
          Properties sold                                    --           (6,040)              --
                                                      -------------------------------------------
     Balance at end of period                         $  73,375        $  82,040        $  83,021
                                                      ===========================================
</TABLE>

(c)  The aggregate cost of land, buildings, improvements and properties held for
     sale for Federal income tax purposes is approximately $188.9 million at
     December 31, 2002.

(d)  46 Fairfield Inns, limited service hotels, located throughout the United
     States


                                       53
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                   FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP

                                   By: AP-Fairfield GP LLC
                                       General Partner


                                       By: AP-Fairfield Manager Corp.
                                           Manager


         Dated: April 1, 2003              By: /s/ Michael L. Ashner
                                               ---------------------------------
                                               Michael L. Ashner
                                               President and Director
                                               (Principal Executive Officer)


         Pursuant to the requirements of the Securities Exchange Act of 1934,
This report has been signed below by the following persons on behalf of the
registrant and in their capacities on the dates indicated.


         Dated: April 1, 2003          By: /s/ Michael L. Ashner
                                           -------------------------------------
                                           Michael L. Ashner
                                           President and Director
                                           (Principal Executive Officer)

         Dated: April 1, 2003          By: /s/ Thomas Staples
                                           -------------------------------------
                                           Thomas Staples
                                           Chief Financial Officer and Treasurer
                                           (Principal Financial and
                                           Accounting Officer)


                                       54
<PAGE>

                                 CERTIFICATIONS

         I, THOMAS C. STAPLES, certify that:

         1.       I have reviewed this annual report on Form 10-K of Fairfield
                  Inn by Marriott Limited Partnership;

         2.       Based on my knowledge, this annual report does not contain any
                  untrue statement of a material fact or omit to state a
                  material fact necessary to make the statements made, in light
                  of the circumstances under which such statements were made,
                  not misleading with respect to the period covered by this
                  annual report;

         3.       Based on my knowledge, the financial statements, and other
                  financial information included in this annual report, fairly
                  present in all material respects the financial condition,
                  results of operations and cash flows of the registrant as of,
                  and for, the periods presented in this annual report;

         4.       The registrant's other certifying officers and I are
                  responsible for establishing and maintaining disclosure
                  controls and procedures (as defined in Exchange Act Rules
                  13a-14 and 15d-14) for the registrant and have:

                  a)       designed such disclosure controls and procedures to
                           ensure that material information relating to the
                           registrant is made known to us, particularly during
                           the period in which this annual report is being
                           prepared:

                  b)       evaluated the effectiveness of the registrant's
                           disclosure controls and procedures as of a date
                           within 90 days prior to the filing date of this
                           annual report (the "Evaluation Date"); and

                  c)       presented in this annual report our conclusions about
                           the effectiveness of the disclosure controls and
                           procedures on our evaluation as of the Evaluation
                           Date;

         5.       The registrant's other certifying officers and I have
                  disclosed, based on our most recent evaluation, to the
                  registrant's auditors and the audit committee of registrant's
                  board of directors (or persons performing the equivalent
                  functions):

                  a)       all significant deficiencies in the design or
                           operation of internal controls which could adversely
                           affect the registrant's ability to record, process,
                           summarize and report financial data and have
                           identified for the registrant's auditors any material
                           weaknesses in internal controls; and

                  b)       any fraud, whether or not material, that involves
                           management or other employees who have a significant
                           role in the registrant's internal controls; and

         6.       The registrant's other certifying officers and I have
                  indicated in this annual report whether there were significant
                  changes in internal controls or in other factors that could
                  significantly affect internal controls subsequent to the date
                  of our most recent evaluation, including any corrective
                  actions with regard to significant deficiencies and material
                  weaknesses.


         Date:    April 1, 2003        /s/ Thomas Staples
                                       -----------------------------------------
                                       Thomas C. Staples
                                       Chief Financial Officer


                                       56
<PAGE>

                                 CERTIFICATIONS

         I, MICHAEL L. ASHNER, certify that:

         1.       I have reviewed this annual report on Form 10-K of Fairfield
                  Inn by Marriott Limited Partnership;

         2.       Based on my knowledge, this annual report does not contain any
                  untrue statement of a material fact or omit to state a
                  material fact necessary to make the statements made, in light
                  of the circumstances under which such statements were made,
                  not misleading with respect to the period covered by this
                  annual report;

         3.       Based on my knowledge, the financial statements, and other
                  financial information included in this annual report, fairly
                  present in all material respects the financial condition,
                  results of operations and cash flows of the registrant as of,
                  and for, the periods presented in this annual report;

         4.       The registrant's other certifying officers and I are
                  responsible for establishing and maintaining disclosure
                  controls and procedures (as defined in Exchange Act Rules
                  13a-14 and 15d-14) for the registrant and have:

                  a)       designed such disclosure controls and procedures to
                           ensure that material information relating to the
                           registrant is made known to us, particularly during
                           the period in which this annual report is being
                           prepared:

                  b)       evaluated the effectiveness of the registrant's
                           disclosure controls and procedures as of a date
                           within 90 days prior to the filing date of this
                           annual report (the "Evaluation Date"); and

                  c)       presented in this annual report our conclusions about
                           the effectiveness of the disclosure controls and
                           procedures on our evaluation as of the Evaluation
                           Date;

         5.       The registrant's other certifying officers and I have
                  disclosed, based on our most recent evaluation, to the
                  registrant's auditors and the audit committee of registrant's
                  board of directors (or persons performing the equivalent
                  functions):

                  a)       all significant deficiencies in the design or
                           operation of internal controls which could adversely
                           affect the registrant's ability to record, process,
                           summarize and report financial data and have
                           identified for the registrant's auditors any material
                           weaknesses in internal controls; and

                  b)       any fraud, whether or not material, that involves
                           management or other employees who have a significant
                           role in the registrant's internal controls; and

         6.       The registrant's other certifying officers and I have
                  indicated in this annual report whether there were significant
                  changes in internal controls or in other factors that could
                  significantly affect internal controls subsequent to the date
                  of our most recent evaluation, including any corrective
                  actions with regard to significant deficiencies and material
                  weaknesses.


         Date:    April 1, 2003        /s/ Michael L. Ashner
                                       -----------------------------------------
                                       Michael L. Ashner
                                       Chief Executive Officer


                                       57
<PAGE>

                                  EXHIBIT INDEX

   No.   Exhibit                                                            Page
   ---   -------                                                            ----
    2.1  Amended and Restated Agreement of Limited Partnership of            (1)
         Fairfield Inn by Marriott Limited Partnership by and among
         Marriott FIBM One Corporation (General Partner), Christopher,
         G. Townsend (Organizational Limited Partner), and those
         persons who become Limited Partners (Limited Partners) dated
         July 31, 1990.

    2.2  First Amendment to Amended and Restated Agreement of Limited        (2)
         Partnership dated as of December 28, 1998.

   10.1  Loan Agreement between Fairfield Inn by Marriott Limited            (1)
         Partnership and Nomura Asset Capital Corporation dated
         January 13, 1997.

   10.2  Secured Promissory Note made by Fairfield Inn by Marriott           (1)
         Limited Partnership (the "Maker") to Nomura Asset Capital
         Corporation (the "Payee") dated January 13, 1997.

   10.3  Form of Ground Lease                                                (1)

   12.1  Statements re: Computation of Ratio of Earnings to Fixed            59
         Charges

   16    Letter from Arthur Andersen LLP to the Securities and               (4)
         Exchange Commission dated May 20, 2002.

   99.1  Confirmation of Receipt of Assurances from Arthur Anderson LLP      (3)

   99.2  Certification Pursuant to Section 906 of the Sarbanes-Oxley         60
         Act of 2002

(1)      Incorporated by reference to the Registrant's Form 10 filed
         on January 29, 1998.

(2)      Incorporated by reference to the Registrant's Form 10/A filed
         on April 11, 2001

(3)      Incorporated by reference to the Registrant's Annual Report
         on Form 10K filed for the year ended December 31, 2001.

(4)      Incorporated by reference to the Registrant's Current Report
         on Form 8K filed May 20, 2002.


                                  58